How to Conduct a Global HR Compliance Audit

March 7, 2019

How to Conduct a Global HR Compliance Audit

Globalization pushes multinationals to align more and more aspects of human resources across the globe that used to be purely local. For example, think of global HR policies and handbooks; global codes of conduct; global intranets and HR information systems; international benefits, compensation and equity plans; global and regional sales incentive programs; global expatriate programs; and supply chain codes of conduct.

Globalizing HR offerings like these cause ripple effects and probably the biggest is compliance. Headquarters has to stay responsible for whatever programs it elevates from the local or regional level. For example, previously headquarters may have paid little or no attention to its overseas affiliates’ locally generated work rules, grievance procedures, or employee benefits offerings; now headquarters has to actively support its global code of conduct, global whistleblower hotline, and global equity plan. 

Global HR Audits Are Increasingly Vital―and Common
This means that at multinational employers more and more compliance initiatives need to be global. Even in situations where an organization delegates compliance monitoring to its overseas local operations, the only way headquarters can be comfortable that compliance gets done right across far-flung locations is to oversee some sort of top-down approach. In one way or another, today’s globalized organizational model requires multinationals to verify that HR operations around the world follow certain globally applicable rules. The global rules appear in diverse places: customer contracts, internal policies and codes, and applicable laws. A multinational’s headquarters needs some effective way to check, assess, monitor or audit HR compliance around the world. 

How to Approach a Global HR Audit
International HR compliance audits come up in very different contexts within a multinational organization, often emerging entirely outside the human resources function. For example, no one would call extraterritorial-reaching white-collar-crime laws like the U.S. Foreign Corrupt Practices Act, U.S. insider trading prohibitions, or U.S. trade sanctions regulations “employment laws,” but the only way a multinational can ensure it complies with these laws is to promulgate HR rules on these topics, to train staff, and to enforce the rules consistently against employees―worldwide―who break them. The process of checking whether these steps got done right is a global HR audit. 

Against this backdrop of global HR compliance audit projects arising across disparate parts of a multinational  organization, the question becomes: How? How does a multinational efficiently assess its own ongoing compliance practices across its international employment operations? How does it isolate which rules apply to staff internationally? How does it verify that local foreign human resources operations actually comply? 

To answer these questions, think through six stages to a global HR compliance audit: 

  1. form the audit team and structure the project; 
  2. articulate audit context and scope; 
  3. create a master audit checklist template; 
  4. align local-country checklists off the master; 
  5. conduct the audit; and 
  6. report, and implement remedial measures. 

While the first two stages are more universal, the latter four stages are project-specific. 

Forming a Global HR Audit Team and Structuring the Audit Project
Consider whom to involve: Consider headquarters, foreign and local human resources staff, and the in-house legal and compliance functions. Consider including subject matter experts such as industrial safety staff, the mergers and acquisition team, or the procurement team depending on circumstances. Involve any corporate audit function. Consider tapping outside counsel who might bring in the attorney/client privilege. Consider involving an outside international HR consultant or specialist labor audit firm. Factor in practical issues like audit team members’ language fluency, availability, and reporting relationships. This said, not all global HR audits enjoy the luxury of a big team—sometimes just a single person needs to assess employment compliance across two or more countries.

With the international HR audit team in place, consider global project management—how to structure this particular cross-border HR assessment cost-effectively and efficiently. Consider practical issues like timing, budget, and the audit team’s power to gather data at overseas offices and later to implement recommended fixes. The temptation can be to take a quick-and-dirty approach, grabbing some global HR audit checklist off the shelf, diving in and just doing the audit. But this never works well because there are other steps involved (and because no one-size-fits-all global HR audit checklist can serve as a sufficiently detailed roadmap). Embrace the fact that your particular cross-border HR compliance audit requires an organic, holistic approach and a number of discrete stages. Shortcuts in managing the project compromise audit results.

Articulating a Global HR Audit’s Context and Scope
A team embarking on an international human resources compliance assessment should begin by articulating the context and delineating the scope of its particular audit project. This step weeds out all irrelevant (even if auditable) issues not in play this time.

First articulate context. Because HR compliance audits arise in different contexts, they end up taking very different paths. Various audit contexts include, for example: implementing a new corporate structure, preparing for a corporate restructuring, launching a merger or acquisition, responding to a lawsuit/government investigation, or simply toughening internal compliance through a robust HR check-up. And as mentioned, international HR audits vary significantly by industry context.

After articulating the context of your particular international HR audit, delineate project scope—how broad and how deep this HR assessment needs to be. Which countries are involved? Should this global audit focus on compliance with laws, with collective agreements, with corporate policies, with best HR practices, or with all of these? As to legal compliance, should this audit look at local laws, at headquarters-country laws that reach extraterritorially, or at both? 

Summary
As today’s multinationals globalize ever more aspects of human resources across national borders, they take responsibility for verifying that international HR offerings comply with laws, labor agreements, and workplace policies and norms. This gives rise to a need for doing global HR compliance audits or assessments. In addition, specific scenarios like preventing corrupt practices, overseeing supply-chain compliance, and conducting due diligence in cross-border M&A or outsourcing deals spawn special breeds of international employment compliance verification projects. Cross-border HR audits can be complex and can take a number of stages to complete, but are increasingly vital to today’s globalized business operations.

The Authors: 

Donald C. Dowling Jr. is Shareholder at Littler in New York City.