HR Audit

Increasing Efficiency of Business

by managing HR Risks
TA X

Human capital is any business' most valuable asset. Underestimating the necessity for a strong
HR Policy, especially during periods of economic instability, exposes both legal entities and
individuals to the full spectrum of risks. HR Audit is an invaluable HR risk management tool.

Tendencies
Over the last months, the State Labor Inspectorate (hereafter - SLI) has
noticeably intensified its efforts. Number of reviews conducted in conjunction
with the Public Prosecutor's Office has significantly grown. The amount of
reviews due to employee complaints has also noticeably increased. While
performing reviews, labor inspectors have devoted a great deal of attention to
the proper execution of labor contracts, labor payments, labor standardization,
and labor protection requirements. Companies should carefully manage their
HR Policy due to those circumstances.

HR Audit can help to:

z prepare Employers for scheduled and unscheduled SLI reviews;
z identify potential risks and define key areas for further improvement of HR
practices;
z protect the Employer in the event of a labor dispute.
(e.g.: if vacation documentation is not properly executed this can lead to a
substantial risk of financial claims being made by employees in relation to
additional payments for unused vacation days).

It is reasonable to conduct an HR audit when:

z restructuring or reorganizing a business;
z replacing key decision-makers (HR Manager, Chief Accountant, CFO, etc.);
z outsourcing payroll and in other similar circumstances.
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Underestimating the importance of sound HR practices can

expose a business to the following risks:

For the Employer For the Employee

For the Company For Decision-Makers

Financial
• Taxes: imposition of additional tax
charges (profit tax, UST), penalties and
interest as a result of improper
documents execution procedures and/or
mistakes in accounts. Fines for breach
of tax agent duties, etc.
• Losses from interruption of business
activities.
Administrative
• Interruption of business activity.
• Prohibition on building and other assets
use.
Reputation
• Disputes with the supervising
authorities can damage Company’s
reputation and result in a loss of clients
and potential investors.
Criminal
• Labor safety: employee responsible for
labor safety is penalized by way of fine,
community work, or imprisonment with
possible disqualification.
Administrative
• Prohibition on holding leading positions
on a Company’s executive board.
• Prohibition on holding positions on a
Company’s board of management.
• Prohibition on carrying on business or
managing legal entities, etc.
Financial
• Taxes: if the Employer incorrectly
transfers Personal Income Tax
payments, the tax authorities can lay
claims on the tax payer (employee).
• Impairment of employee rights:
wrong calculation of vacation payments,
sick leave compensation, etc.
Labor
• Loss of employee entitlements: non-
provision of privileges guaranteed by
law (vacations, sick leaves, etc.).

Why KPMG
Experienced staff
KPMG professionals have a substantial experience in conducting complete HR
Audit, as well as assessing HR paperwork for labor law compliance within the
framework of complex projects, such as improvement of HR function
effectiveness, development of remuneration system, etc. We have successfully
completed several projects of the kind for both, domestic and international
companies.

Comprehensive approach
Based on the results of the conducted analysis, we can identify areas for
improvement within HR function and develop specific action-oriented
proposals for improving the current practices. Depending on the project
objectives, HR, tax, legal and business advisors can participate in the project.
 HR Audit 3

KPMG Services
Project Example:
Standard HR Audit procedure includes several stages:
On request of a large international
oil & gas company, KPMG
1. HR documentation analysis
professionals have analysed
people management policies, labor, Verify the availability and correctness of the HR documentation - employment
tax and migration law compliance agreements, labor books, staff list, job descriptions, timesheets, etc.
and correctness of payroll
calculations in several companies
2. Local statutory acts analysis
acquired by the client. Our analysis
has revealed considerable risks of Review of compensation and other regulations and their compliance with labor
non-compliance with labor and and tax legislation.
migration legislation and areas for
improvement in people 3. Review of payments to employees as well as the identification and
management.
evaluation of risks related to inaccurate calculations
Frequency of salary payout; accuracy of PIT and UST calculations; accuracy of
travel allowance, vacation pay, and medical sick-leave certificates allowance
calculations; etc.

4. Review of labor safety procedures

5. Assistance and recommendations for a set period for the HR

Department on how to rectify those violations

Additional services
In addition to the standard services rendered in the course of HR Audit, we can
help you to:

z analyze the tax efficiency of compensation packages and local statutory

acts, taking into account 2010-11 legislation changes;
z develop local statutory acts or make changes to existing acts;
z retrieve missing HR documentation/labor safety documentation;
z carry out organizational culture diagnostics, evaluate employee motivation
and loyalty levels, and recommend improvements to company's incentive
program. This is of the utmost importance for companies that have recently
changed their organizational structure, headcount or compensation
packages.
kpmg.ru

Contact us:

Alevtina Borisova Marianne Tsyrkina ÊPMG in Russia

Partner Manager,
Head Office, Russia and the CIS
People Services People Services Naberezhnaya Tower Complex, Block C
MTsyrkina@kpmg.ru 10 Presnenskaya Naberezhnaya
ABorisova@kpmg.ru
Moscow 123317
Telephone: +7 495 937 4477
Fax: +7 495 937 4499
E-mail: moscow@kpmg.ru
North-West Regional Center
Antonina Krasik Maria Malinina “Renaissance Plaza” Business Center
Senior Consultant Senior Consultant 69-71 A, Ul. Marata
St. Petersburg 191119
People Services People Services Telephone: +7 812 313 7300
AKrasik@kpmg.ru MMalinina@kpmg.ru Fax: +7 812 313 7301
E-mail: stp@kpmg.ru
Siberia Regional Center
2 Prospect Dimitrova, 10th Floor
Novosibirsk 630099
Lyudmila Legkaya Telephone: +7 383 230 2255
Fax: +7 383 230 2266
Consultant E-mail: novosibirsk@kpmg.ru
People Services South Regional Center
LLegkaya@kpmg.ru 60 Prospect Budennovsky, 9th Floor
Rostov-na-Donu 344010
Telephone: +7 863 204 0050
Fax: +7 863 204 0055
E-mail: rostovnadonu@kpmg.ru
Urals Regional Center
World Trade Centre, 44 Ul.Kuibysheva,
Office 406, 4th Floor
Ekaterinburg 620026
Telephone: +7 343 359 6070
Fax: +7 343 359 6071
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or E-mail: ural@kpmg.ru
entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as
of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate Volga Regional Center
professional advice after a thorough examination of the particular situation. 117 Ul.Gorkogo, 8th Floor
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