ENVIRONMENTAL AUDIT
Environmental audits are reviews of a company’s operations and processes for the purpose of assessing compliance with the environmental rules and regulations. Environmental audits cover a broad spectrum of business activities and areas; including buildings and building sites; activities and procedures; industrial and commercial developments; and engineering hazard studies. They can range from legally mandated reviews of plant safety or emissions to voluntary inspections of environmental practices.
Environmental audits are perhaps best known for their use in conjunction with real estate transactions. During the 1970s and 1980s, the passage of environmental protection laws and Superfund legislation created an enormous appetite for environmental audits for real estate purchases. Prospective purchasers of property increasingly conducted audits to ascertain whether there are hidden environmental problems or issues connected with the property that might require future expenditures. The real estate audits remain popular today. They are intended not only to identify environmental problems, such as chemical contamination – resulting from current or past practices, but also to quantify the costs associated with treating the problems so that the site meets local, state, and federal environmental guidelines. If an environmental audit does turn up issues of concern, the prospective buyer has the option of walking away from the purchase or asking for compensation from the seller toward future regulatory penalties or cleanup costs.
The scope and quality of other modern environmental audits vary dramatically from company to company. Some firms engage only in periodic or one-time inspections of major aspects of facility operations, or limit their compliance efforts to “paper reviews” of programs without engaging in physical inspections. Other companies, on the other hand, motivated by a sense of environmental stewardship and/ or concerns about legal penalties associated with non-compliance, mandate far more detailed audits. Whatever your company’s historical attitude toward this issue, the Environmental Protection Agency (EPA) states that an effective environmental auditing in today’s business world should include the following elements:
- Explicit management/ownership support for the audit and commitment to address findings.
- Environmental auditing function that is independent of audited activities.
- Adequate allocation of resources (in terms of staffing, training, and equipment) to complete a detailed audit.
- Clearly delineated audit program, including specific objectives and timing of audit activities.
- Process that includes quality assurance procedures to assure that the environmental audit procedure is thorough and accurate.
- Process that collects, interprets, and documents information in a way that meets audit objectives.
- Process that includes specific procedures for reporting audit findings, scheduling corrective action, and taking corrective action.
Environmental Self-audits and Public Disclosure
Many companies have embraced voluntary environmental audits, commonly known as self-audits, as a valuable business resource. Consultants and experts agree that the practice can be of enormous benefit in all types of industries, for it addresses so many facets of a company’s operation. Self-audit has been described as a valuable “diagnostic tool” that can be used by companies seeking to identify and address compliance problems relating to air, water, land use, solid waste, and hazardous materials prior to submitting formal permit applications or other business processes.
For its part, the EPA has adopted policies to encourage companies to conduct environmental self-audits, as it has stipulated that it does not request access to audit information except in extreme circumstances, such as when the audit contains the only available evidence of a “knowing and willful” criminal violation of environmental or safety law. It has also historically opposed efforts to expand audit secrecy privileges, which continue to be a source of controversy in business and conservation circles.
Meanwhile most business consultants and observers urge companies to utilize environmental self-audits, whatever level of confidentiality treatment they receive. The following valuable incentives for companies to conduct environmental audits are cited:
- Reduced exposure to fines and litigation costs by identifying and providing an opportunity to correct noncompliance before the government or a private citizen initiates action.
- Increased attractiveness to investors
- Improved reputation and assurance of corporate citizenship among shareholders and creditors.
- Detailed knowledge of a facility’s condition can help expedite negotiations for sale or an asset and provide important information on planning future growth.
Finally, a credible environmental audit program may make the difference in both retaining the loyalty of the consumer at the retail level and in soliciting valuable contracts for corporations that have made environmental considerations part of their purchasing and contracting practices.
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