#takeaways Risk webinar 2: How Internal Audit can optimize the hiring process and drive recruitment success

The relevance of recruitment internal audit

The 2024 annual Risk survey conducted by the Institute of Internal Auditors (IIA) once again highlighted human capital as the second biggest risk, encompassing recruitment, diversity, talent management and retention. The survey indicates that Heads of Internal Audit expect a substantial rise in the time spent on this risk in the coming years.

We believe that conducting a recruitment audit will enhance compliance, efficiency and cost-effectiveness, while improving the candidate’s quality and experience. It provides data-driven insights to mitigate risks related to finding, attracting ánd retaining talent, leading to better hires and reduced turnover.

While risk mitigation may not seem like a typical HR responsibility, implementing internal controls in the hiring process is a highly effective and impactful improvement strategy.

Risks within the hiring process

There are four types of risks associated with the hiring process. While many are familiar, they are often not yet managed as risks.

1. Strategic risks, e.g. no market-based wages and compensation leading to suboptimal budget allocation;
2. Operational risks, e.g. difficulties in attracting and retaining talent due to limited forecasting of the required labor force;
3. Financial risks, e.g. increased recruitment costs due to suboptimal allocation of resources;
4. Compliance risks, e.g. limited adherence to the EU Pay Transparency directive can lead to fines and reputational damage.

Three lines of defense

The role of internal audit in assessing the design and effectiveness of the internal controls embedded in the recruitment process can be illustrated using the 3 lines of defense model. The first line manages the recruitment risks by implementing internal controls, the second line monitors and guides the first, and the third line independently assesses the effectiveness of the first two lines and provides recommendations for improvement.

For example: Your Talent Acquisition team attracts the necessary talent for current and future needs, working with line managers as the first line of defense. The second line develops and implements an HR strategy, including recruitment and succession planning. This Strategic Workforce planning starts at CHRO level and is implemented by line management. Your Internal Audit responsible will ensure the existence and adherence to this strategic plan.

If you do not have an internal audit function in-house or outsourced, we advise focusing on your first line of defense to ensure internal controls are effectively executed through the recruitment process.

Some best practices

We often see the following key internal controls are missing:

• Governance controls
  • Segregation of duties
  • Authority Matrix
  • Documented key policies and procedures
    
• Compliance controls
  • Embedded job levels
    
• Operational controls
  • Periodic monitoring and review of recruitment KPIs
  • Documented candidate screening and selection criteria process
• IT controls
  • Confidentiality
  • Data protection

We consider the implementation of advanced analytics as a best practice, which can consist of continuous control monitoring to identify trends, key recruitment metrics (e.g. time-to-fill, cost per hire, etc.) as well as data and process mining to analyze and optimize the hiring process.

Identify potential risks and opportunities

Talent acquisition is a broad field of expertise that should be viewed as an end-to-end process. Its complexity and the wide range of stakeholders involved make it challenging to identify areas for improvement and potential risks. This is where the Talent Acquisition Scan can help. The scan provides a pragmatic roadmap for process improvement and highlights risk areas.

The Talent Acquisition Scan starts by mapping the current situation through a survey and in-depth interviews with all relevant stakeholders. This enables a fit-gap analysis of the future state. We can assist you in implementing the redesigned process, offering training and support to all stakeholders involved.

Key takeaways

In conclusion, as the pace of business accelerates and risks evolve, the role of internal audit in the hiring process is more critical than ever. The 2024 IIA survey underscores 'human capital' as a top risk, necessitating a comprehensive understanding of HR-related risks by HR professionals.

By conducting recruitment audits and implementing best practices, organizations can enhance compliance, efficiency, and candidate quality while mitigating risks associated with attracting and retaining talent. Utilizing advanced analytics further strengthens the recruitment process.

The key message is clear: Internal audit functions, combined with HR professionals as guest auditors, are essential in optimizing hiring practices and driving recruitment success, ultimately leading to a more resilient and effective organization.