21 December 2018
Daniel McNamara, Associate
When an organisation braces for “audit time”, the negatives can be perceived to outweigh the positives. This is often the case where organisations engage in mandatory audit processes to confirm compliance with specific statutory obligations. However, “audit time” does not need to be viewed by organisations with apprehension. When executed properly and for a valid purpose, audits can be of great benefit to an organisation in terms of productivity, efficiency and employee satisfaction. Auditing processes, including those that are externally driven and those that are employer-initiated, can be used proactively to mitigate the risks of other issues emerging and reactively, to identify and manage existing problems.
This article considers the proactive use of audits which an organisation may wish to engage in and highlights the benefits of an approach to auditing that stretches an organisation beyond a minimal compliance model.
What does an audit entail?
When you mention “audit”, it is commonly thought of as a process that independently examines documentation, records or processes of an organisation with the aim of ascertaining whether an organisation is compliant in terms of its legal or ethical obligations. Not so common, is using an audit style process to test how an organisation is placed in terms of what it aspires to achieve, including culture and values and what is regarded as best practice in the industry. Audits can generally be defined as either:
- employer-initiated audits that are instituted as an objective means of ascertaining current practices or standards with a view to creating a “high-performance” culture; and
- external audits, which are generally reactive and performed by staff from statutory agencies and are focused on an organisation’s legal compliance.
Unlike external auditing processes, employer-initiated audits are typically a proactive step taken by organisations and are considered as going “above and beyond” an organisation’s legal requirements. They are not mandated from an organisational/employer liability perspective. While external auditing fosters compliance and enables an organisation to “survive”, employer-initiated audits allow an organisation to “high-performing/” and thrive, by focusing on areas of the business that can be improved or enhanced. These include:
- culture audits – introspectively focusing on the practices and behaviours within an organisation, whether these practices and behaviours align with an organisation’s objectives, and any areas of potential improvement;
- effectiveness audits – considering whether an organisation is optimising its resources and human capital in line with its goals; and
- people strategy audits – assessing an organisation’s leadership and direction, its alignment with the organisation’s structural framework, and identifying areas for improvement or change which may exist throughout the employee lifecycle.
If an organisation wishes to reap the benefits of an employer-initiated audit fully, auditing should be seen as one element of an overall strategy to creating a “high-performance” culture, including working together to reduce risks to the health of the organisation and build long term organisational resilience. An employer-initiated audit process can critique the governance and practices of an organisation but requires the support of management and appropriate internal governance mechanisms to enable the outcomes of the audit to be fully realised. In essence, this requires all aspects of the organisation’s operations to align with what the audit process seeks to achieve.
Apart from providing an independent and transparent analysis of an organisation’s functions, strengths and weaknesses, employer-initiated audits can also establish key trends and themes. This can have the flow-on effect of creating a better understanding of risks and processes, highlighting organisational issues requiring action, and establishing mechanisms to rectify risks and organisational gaps.1
Staff engagement in employer-initiated audits
To ensure that an audit fulfils its purpose, organisations should be mindful that the audit process engages with, and involves, staff.
Having staff input into the audit process is a necessary step in ensuring that concerns of staff are recognised, affirming an employer’s commitment to organisational justice and fairness. This can assist in creating a culture where staff feel empowered to be involved in processes which benefit the long-term productivity and wellbeing of the organisation, knowing that their voices have been heard.
In addition, distributing the results of the audit process can have the effect of keeping an organisation accountable to remedy any issues outlined in the audit. Communicating audit results provides a level of transparency that can foster staff engagement and increase “buy in” to any organisational initiatives that result from the audit process.
A later article in this edition “Pulling the trigger: audits as a responsive mechanism” discusses audits as a reactive tool. Typically, these take the form of external audits.
External audits often fall into the category of being “mandatory”, meaning that organisations have little or no legal choice but to comply with the audit. The possibility of an external audit is a very real prospect for many organisations. Generally speaking, the intention of external auditing is to operate as a general deterrence.2 This is based on the idea that the threat of an audit or investigation, accompanied by the risk of subsequent legal action, should outweigh the benefits of the non-compliant behaviour. As a consequence, decision-makers in an organisation may fear the repercussions of engaging in non-compliant behaviours and hence be more likely to comply with legislative standards.
Audits are inevitable in the lifecycle of an organisation. This article has outlined some key considerations in conducting audits, and the type of audits that an organisation may experience. It has identified that the benefits of auditing have the potential to far outweigh any administrative burden that the auditing process may impose. Fears and concerns around external audits should not be transposed to the employer-initiated auditing context, as the latter can bring significant benefit to the long-term functioning of an organisation. As we have outlined, employee engagement is a crucial step for employer-initiated audits. Organisations of all sizes should embrace the prospect of positive change that audits can deliver.
If your organisation wants to take a proactive approach to assessment, PCS recommends you consider a culture and effectiveness audit. This will involve an assessment of your organisation’s vision and values, systems and structures, capabilities and credibilities, to identify gaps in your organisation and build a robust people strategy.
- PriceWaterhouseCoopers, Maximising the value of Internal Audit: who dares wins p 8.
- John Howe and Tess Hardy, ‘Business Responses to Fair Work Ombudsman Compliance Activities’, (Centre for Employment and Labour Relations Law, Melbourne Law School, January 2017) p 3.