XIII Environmental Audits
Library | Illinois Environmental Law for Non-Environmental Lawyers (2017 Ed.) |
A. Introduction
As discussed elsewhere in the various chapters of this publication, a business may be subject to many requirements under various state and federal environmental laws and regulations. In addition, local ordinances may affect the way in which a company does business. As such, there are many pitfalls that may subject the business to penalties, legal proceedings, and, more importantly, lost time in dealing with an enforcement proceeding for violations of environmental regulations.
One way that a company can minimize the risk and impact of an enforcement proceeding is to perform periodic checks of its operations in order to determine whether the business is operating in compliance with environmental laws and regulations. Such a procedure is commonly referred to as an "environmental regulatory compliance audit" or, more simply, an "environmental audit."
There are other benefits to performing an environmental audit as well. For example, environmental regulatory agencies have either formal or informal policies regarding a company's self-disclosure of non-compliance. These policies offer financial and other enforcement benefits to companies that self-report violations of legal and regulatory obligations. In addition, an environmental audit may enable a company to identify opportunities for improving its environmental management practices.
This chapter will discuss the process involved in planning and performing an environmental audit.
B. Preliminary Considerations
Many factors should be considered when deciding whether to conduct an audit.
1. Protecting the Findings of the Audit
The first issue is who will direct the environmental audit. Although any fact uncovered by an auditor is subject to discovery in an enforcement proceeding or in litigation, the environmental report and its conclusions, prepared in the course of an environmental audit, may not necessarily be subject to disclosure. Therefore, a primary consideration in the decision to conduct an audit should be to structure the audit in a manner that preserves any privileges that may protect against the report's disclosure, including the attorney-client privilege and the work-product doctrine. Accordingly, the environmental audit should be commissioned and directed by counsel in order to protect any privilege that might later be asserted. Given the dual role of in-house counsel as legal and business advisors, some commentators suggest that outside counsel, who are generally retained only in a legal capacity, should direct the environmental audit in order to increase the likelihood that the audit report can later be protected as privileged.
2. Choosing the Auditor
Once the decision is made on who will direct the audit, the next decision is who will conduct the environmental audit.
Environmental audits have occasionally been conducted by counsel, but an attorney may not have the necessary technical expertise to adequately analyze the company's processes. Furthermore, counsel must make the determination regarding whether a regulation is applicable. To better perform this role, counsel should be in a position to impartially review the data gathered in order to render an opinion. For these reasons, counsel should not also act as the auditor. Rather, the environmental audit should either be performed by the facility's staff who are knowledgeable about relevant regulations and processes or by a reputable consultant experienced in the area (i.e., an independent auditor).
Each has advantages and disadvantages. Employees of the corporation could perform an environmental audit; staff will certainly be knowledgeable about the processes and, presumably, the regulations applicable to the facility. Corporate dynamics, however, may preclude staff from adequately performing the audit. For example, an audit forces the auditor to critically analyze operations or certain policies and procedures of the corporation. This may put staff at odds with co-workers and/or management and may result in a less-than-honest assessment of the facility's compliance status. In addition, staff may in fact be the individuals responsible for compliance, making them less inclined to reach findings that highlight their shortcomings.
An independent auditor can alleviate these problems. The independent auditor's primary concern is defending his/her findings, rather than considering the impact of a finding on working relations within the business. But, there may be drawbacks to this approach. First, the independent auditor may not have as thorough an understanding of the facility's processes and, therefore, may not fully appreciate the regulatory requirements that apply to the facility. In addition, retaining an independent auditor likely will increase the cost of the environmental audit. These drawbacks must be weighed against the benefits of using an independent auditor: an impartial set of eyes to look at internal policies and procedures without the concern that something the facility may have been doing was wrong. Furthermore, an independent auditor may have greater accumulated expertise in the auditing process and potentially relevant environmental-auditing standards.1 Accordingly, using an independent auditor would ordinarily be the preferred approach to performing an...
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