Environmental Auditing and Environmental Management

• Author: Frank B. Friedman
• Pages: 261-347

Chapter 6:

Environmental Auditing and

Environmental Management

Responsible environmental management recognizes that what you don’t

know will hurt you. Environmental auditing is an important, although

limited, means of helping to identify problems so that they can be addressed.1

An environmental auditing or assessment program is an objective, sys-

tematic, periodic, and documented review of practices and operations that

may affect the environment. (I prefer the term assessment, although for the

sake of simplicity, this book uses the two terms interchangeably.) Such a

program is an integral part of a general management system, assisting a

company in organizing and managing effective environmental programs.

An environmental assessment program also provides benefits for financial

planning, SEC reporting, personnel development, public and employee re-

lations, expansion planning, legislative and regulatory strategy develop-

ment, and evaluation of acquisitions and divestitures.

To be an effective management tool, auditing must be examined in the

context of responsible management. As discussed in the preceding chap-

ters, management goals are as follows:

• Development and implementation of corporate-wide policies, sys-

tems, programs, and guidelines providing independent assurances

that the corporation is properly addressing environmental concerns.

• Implementation of a system for promptly identifying prob-

lems and advising management of those problems and the steps

being taken to solve them.

• Maintenance of a system for independently determining the

environmental compliance status of all facilities and subsidiar-

ies and for ensuring that any required actions are taken. The pur-

pose of auditing and other management programs is to ensure

that the corporation is responding quickly and effectively to is-

sues and concerns.

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• Development and implementation of mechanisms for identify-

ing emerging environmental issues as well as for coordinating

planning for responses to issues involving more than one division.

• Minimization of the liability exposure of the corporation, its

officers, and its employees.

An auditing program should be designed to further these goals. The basic

criteria for judging the quality of a program are “top management support;

an audit manager or team independent of production responsibilities; a

structured program with written audit procedures; a system for reporting

audit findings to senior management; and a corrective action program.”2

Such a program, when managed at the corporate level, helps ensure that ef-

fective systems for managing environmental risk and liabilities actually are

in place, understood, and followed.

Although environmental auditing has received considerable attention,3it

is only one aspect of environmental management. Auditing can provide

only limited control and awareness of potential issues. An audit is merely a

snapshot of existing controls at a facility.Any focus on auditing alone, with-

out other strong systems, programs, and procedures, is misplaced.

Moreover, there is much controversy about environmental auditing, both

in the United States and abroad. However, there is increasing pressure, par-

ticularly with the advent of Sarbanes-Oxley, to consider more specific and

detailed standards as to scope and purpose. As the financial audit has pro-

gressed and become more detailed, should not the same concepts be applied

to the environmental audit? The “standards” for environmental auditing de-

veloped by the Board of Environmental, Health & Safety Auditor Certifica-

tions (BEAC) in 19994are presently under review.5Environmentalauditing

is not like financial auditing, which is conducted under formal procedures

pursuant to rules and standards that allow comparisons and judgments of

compliance.6There is disagreement about the degree to which audits should

be structured and what their nature and scope should be. There is much de-

bate about whether insiders or outsiders should conduct the audit, what

qualifications auditors should have, and whether auditors should be certi-

fied. Disclosure of audit results and verification are also at issue.

The remainder of this chapter discusses the benefits and risks of environ-

mental auditing, the significant elements that an environmental assessment

program should have, and general information about areas of controversy in

state, national, and international auditing policy.

Benefits and Risks of Environmental Auditing Programs

Environmental auditing or assessment programs offer significant legal and

262 Practical Guide to Environmental Management

corporate benefits for both large and small companies. Careful evaluation of

the environmental components of a business helps to ensure compliance with

both environmental and securities laws. Assessment programs, along with

other environmental management programs, reduce the risk of liability expo-

sure. If environmental problems are addressed promptly, the overall environ-

mental programs are more cost effective and will reduce long-term liability

and environmental costs. There are also unquantifiable, but important bene-

fits, such as improved employee development and public relations.

Despite these benefits, companies hesitate to institute auditing programs

for fear that audits may uncover problems. Companies further fear that the

problems will be disclosed, which may expose them to bad publicity or

bring about or worsen their posture in government enforcement actions, cit-

izen suits, or toxic tort litigation. Yet,as discussed below, the benefits of en-

vironmental assessments far outweigh the risks, and there are ways that the

risks can be managed and minimized.

Legal and Corporate Benefits of Auditing

There is an array of benefits for companies that adopt a strong environmen-

tal assessment program.7They are listed below.

Ensuring Compliance. A strong environmental assessment program is a

key method of ensuring compliance with environmental laws and regula-

tions, as well as company policies and programs. In view of the range of

possible adverse consequences for violating environmental laws and regu-

lations, it is critical to develop a method for ensuring compliance, or at least

for determining whether potential noncompliance problems exist that need

to be addressed.

The assessment itself is an important mechanism for determining the sta-

tus of compliance. It focuses on early identification of actual or potential

compliance problems and helps ensure that management is aware of the sta-

tus of operations. The environmental program must be action-oriented to

ensure that any problems discovered are eliminated and that no “smoking

guns” remain unattended. Problems should be resolved in ways that reduce

the risk of inadvertent violations and agency enforcement actions.

Avoiding Civil and Criminal Liability.Virtually all of the environmental

statutes provide sanctions for noncompliance. These can include civil pen-

alties, criminal fines and imprisonment, injunctions, citizen suits, other ac-

tions, and permit or registration suspensions or revocations. There is contin-

uing concern as to exposure to criminal prosecution, particularly as EPAhas

built up staff in this area (see Chapter 2, Criminal Liability—A Key Con-

cern for the Environmental Manager). In addition to the criminal sanctions

in the federal environmental statutes, a number of provisions in the U.S.

Environmental Auditing and Environmental Management 263