Background : An Information Technology (IT) company specialising in application maintenance software for foreign companies, mostly based in the US and Europe, is head-quartered in Mumbai and has Rs.500 crores annual turnover. Human resource is the key resource for an IT company, and its proper management is one of the critical success factors for its continued growth and survival.

Audit Committee Chairperson has indicated to the partner-in-charge of the outsourced firm carrying out internal audit that the coverage of personnel audit would be desirable every six months. Chief Executive Officer and Chief Financial Officer agree with the importance given by Audit Committee Chairperson to Personnel area. They have indicated the importance of this area to the partner-in-charge and also cautioned him that this being a sensitive area, needs to be handled with care. This exercise should be done by experienced persons.

Methodology :

Partner-in-charge has a meeting with his audit manager and they chalk out a plan to have personnel audit for 30 days every six months for the company.

Basic methodology would be to first hold a pre-audit meeting with the departmental head to explain the internal audit objectives and also ask for co-operation and support, interact with key employees in the department, flow-chart the area, understand the control weaknesses, draw up a checklist specific to the organisation and audit area based on similar checklists available in the outsourced firm’s database, carry out trans-action testing in areas where control weak-nesses have been observed based on sampl-ing techniques, suggest recommendations for improvements and get acceptance on the recommendations in the form of final sign off by the process owner/departmental head (clearly indicating that the report including the recommendations has been discussed with him and his comments including the implementation time frame indicated have been taken from him).

The outsourced Chartered Accountant firm specialises in internal audit and has a structured methodology for carrying out internal audit and is also ISO 9002 certified. Based on the structured methodology, a pre-audit meeting is held with the HR Head and this meeting is also noted in the pre-audit meeting format — Annexure I.

The audit area is split into smaller elements — recruitment activity, induction and continuous management including record maintenance and appraisal activity and resourcing activity (resourcing activity would be to deliver the software profes-sionals for projects and track them on a daily basis).

Three separate flow charts for each element of personnel activity area are prepared. A checklist is also drawn up — Annexure II.

Observations :

1. Discrepancies observed regarding non-availability of various documents in 54 out of 120 cases from 1st January 2003 to 30th June 2003 with Personnel Department (recruitment activity). Summary details are given below :

â Company application form not available in 5 out of 50 cases.

â Recruiter’s feedback sheet not prepared in any case.

â Technical interview feedback forms not available in 22 cases and person-nel interview feedback forms not available in 34 out of 50 cases.

â Compensation fitment grid sheet is not filled up and available in any case.

Recommendations :

All laid down processes to be followed in spirit and also the necessary documents maintained on record as :

(a) Recruitment is part of the ISO 9000 process and non-conformity would jeopardise the continuity of ISO certification.

(b) Personnel function being critical to the organisation success, the need for transparency in recruitment activity is necessary.

2. Other issues in recruitment :

– No variance analysis of budgeted versus actual expenses undertaken for the recruitment activity.

– 40% (Rs.6.5 lacs) of total recruitment expenses comprises of personnel advertising through which only 3% (7) resources were recruited.

– In 20 cases resources were directly recruited by concerned department and not routed through Recruitment Department.

< i>Recommendations :

(a) Variance analysis to be carried out between budgeted versus actual expenses for recruitment activity and deviations along with action plan for improvement to be made every quarter — emphasis to be on adherence to the budget.

(b) Advertising to be stopped as only 3% resources are recruited through advertising compared to the amount spent.

(c) All recruitments to be routed through Recruitment Department only.

3. Pre-employment screening in terms of reference check not carried out by the organisation in most cases. High risk in terms of wrong persons getting into the organisation.

Recommendations :

(a) Reference checks to be carried out for all prospective employees.

(b) Explore to hire an agency who could carry out pre-employment screening in terms verifying authenticity of educational background, reference checks, etc.

4. Inaccuracy in Resourcing — personnel database leading to loss to the company. An employee is supposed to travel on a particular date to onsite location in Europe or the US and he defers his travel by a week. This fact is not recorded in the resourcing database which transfers this data to payroll. By checking the travel records, it shows that the concerned employee has travelled later but he/she is paid more based on the assumption that he has already arrived in Europe or the US.

Recommendations :

(a) Initial transfer information which is processed for an employee going onsite but needs to be double-checked with travel database.

(b) Payments for additional allowance/ increase in remuneration to be made only after verification.

Other observations :

0 There is no foolproof system for final settlement. Employees are relieved from their duty and paid fully, in few cases, even if they don’t hand over charge properly, refund all the assets of the company and settle the advances. There is room for improving co-ordination between the two concerned departments — Accounts and Personnel.

0 Attendance recording system which is automated has not been tested fully as it has been recently installed. Any bugs in the software will be costly as many contracts are time and material contracts, and the revenue for the company is based on time spent and same being captured properly in the system.

0 Leave records are not available to employees on online basis as the automated system does not presently permit the same. Changes to be made so that each employee may have online access to his leave records.

0 Surprise checks at night should be carried out by senior officials for checking attendance. Presently, no such system in place.

0 Annual appraisal forms for some departments are not properly filled and some are quite sketchy. This may lead to demotivation for the staff working in those departments/ projects.

Conclusion :

Based on internal auditor’s observations, corrective actions were immediately under-taken by the Personnel Department. The auditee benefited in terms of better control over the process and there were cost savings. The streamlining of processes actually improved the morale of the employees.

Checklist for internal audit of Personnel activity

How is the staffing requirement determined and how does the recruitment head be assured of the accuracy and reliability of this requirement ?

How is the skill requirement for the software professionals determined and how this data is used to ensure that the right persons with requisite skills are employed ?

Is there a budget for the recruitment activity, and how is the cost spent on each recruitment activity like campus recruitment, visit to outstation locations measured and whether any cost-benefit analysis carried out ?

How effectively are resources — software professionals and others tracked on a day to day basis and how are staff on bench (without work) — tracked ? Whether any in-house projects are given to staff on bench ?

Are the staff and project managers/ supervisors appropriately organised and structured to facilitate the allocation of responsibilities and adequate lines of communication ?

Are all staff aware of their responsibilities and how is this achieved ?

Are surplus staff on projects identified and redeployed to achieve optimum utilisation of resources ?

Would failure to meet timelines and/or quality targets be promptly identified and how is this evidenced ?

How is management assured that all required resources are made available on timely basis by recruitment ?

What mechanisms are in place to ensure that all overtime payments are valid, authorised and correctly accounted for through payroll systems ?

What mechanisms are in place to ensure that payments made to software profes-sionals when they travel onsite to US and Europe are properly accounted for since there is a changeover from off-shore to onsite employement ?

What measures prevent fraudulent mani-pulation of time-sheets and also the data-base where these time-sheets are stored ?

Does the management ensure that night-shifts are properly supervised, and there is availability of proper care in terms of food, transport etc. for the software professionals during night shifts ?

How does management ensure that all required equipment like computers, table space, softwares, etc. are provided and that staff comply with the prevailing safety regulations ?

Is pre-employment screening carried out to confirm that previous employment records are correct and satisfactory and any short-comings are suitably identified ?

Is there a staff turnover problem and what measures are in place to monitor and minimise the turnover of employees ?

How is accuracy of data input from other systems and accuracy of data output to other systems confirmed ? This is more specific to various interface in the systems.


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October 2020