--___-- Regulatory compliance,

drive environmental audits BY MARYANNT DIBERTO

Audit planning

Document verificat,on

osition of all findings

Document discussion of

30 Environmental Solutions * July 1994

S ENVIRONMENTAL PRO-

tection takes on greater -priority, more compa-

nies are developing environ- mental auditing programs. Details of these programs vary, but they share a basic goal -to verify that environmental, health and safety activi- ties comply with company policies, and fed- eral, state and local regulations.

The growth of environmental auditing has been driven by the same forces that since 1970 have changed many aspects of the business-environment relationship. These forces include:

Rapid creation of a complex, demand- ing system of environmental regulations and requirements;

Consistent and mounting public expectations for environmental cleanup and industrial environmental performance improvements;

Much tougher definitions of criminal and civil liability for corporate environ- mental shortcomings, including steep tines and jail terms for senior management; and

Industry's growing recognition that improved environmental performance can become a competitive advantage.

In addition, regulations, court case precedents and public expectations are brc- ing companies to disclose much more about their environmental performance than in the past.

The handful of companies that devel- oped auditing programs considered them internal tools for evaluating environmen- tal performance in their facilities and oper- ations. As the discipline has spread and environmental regulations have prolifer- ated, auditing increasingly has been driven by a need to assure senior manage- ment that their companies are in compli- ance and sound environmental procedures are being used.

To achieve these goals, companies sys-

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Envirwunental audits tematically design and conduct environ- mental audits to address relevant concerns, and appropriately document and report all findings. This approach can be compared with financial auditing. For example, both disciplines reqhre methodical approaches, auditors with the patience and skill to probe beyond seemingly acceptable conditions, and the ability to assess how well a com- Dany practices-conform with a complex range of n o m and standards.

Financial audits are highly codified and conducted in accordance with standards promulgated by the Financial Accounting Standards Board, while environmental auditing can take a variety of approaches. Although there is broad agreement on envi- ronmental auditing principles and prac- tices, no single set of standards guides all auditing activities, and no certifylng body exists to assess practitioners’ qualifications or work.

This situation is changing. The Euro- pean Union’s Eco-Management and Audit Scheme, scheduled to take effect in 1995,

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establishes a voluntary system for companies to report and receive cer- tification of environ- mental performance. A r,ange of national and international initiatives on enviroiuiiental man- agement systems, in- cluding efforts by the hitemational Standards Organization’s Techni- cal Committee 207, will ensure the growing importance of environ- mental auditing to coni- panies’ quality assurance strategies.

Auditing increasingly has been driven by a need to assure senior management that their companies are in compliance and sound environmental procedures are being used.

national Chamber of Commerce, April 1991). These and other guides emphasize using stan- dard methodology, ver- ifyllig compliance against standards, and e~nploy- ing sound auditing tech- nicpes.

Effective auditing programs share various characreristics, including:

Explicitly defining audit objectives, coni- municating them clearly a 11 d ba c k i ng them with the appropriate

resources, enabling companies to foster coin- Successful audits. Despite the lack of

codified standards for environmental audit- ing, inany widely accepted pdelines exist, includuig diose found in ‘‘Smdards for Envi- roilmental Auditing” V h e Environmental Auditing Roundtable, February 1993), and “Effective Environmental Auditing” (Inter-

nion interpretations of issues among audit team members and prevent later misun- derstanding by line managers;

Defining audit scope boundaries - which can be geographic, organizational, hictional, site-based, regulatory or framed in terms of manageinent practices - to

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match audit objectives with available resources;

Prioritizing coverage through formal site selection and scheduling, which helps companies with multiple facilities empha- size auditing at major plants while not over- looking others;

Matching an audit’s approach to its objectives, enabhg companies to focus spe- cific activities on such areas as compliance verification and management systems;

Ensuring that audit team members have the personal resources - expertise, efficiency and training - appropriate to an audit’s scope and the facilities they will monitor; and

Securing senior management support and maintaining auditors’ objectivity to ensure that goals are achieved, accurate information is obtained and performance levels are raised.

Audit structure. Trpical environmen- tal audits include three phases - pre-audit planning, on-site activities, and post-audit activities and follow-up (Figure 1).

Audit teams are selected early in the process. Environmental auditing requires careful, pragmatic judgments; thus, team leaders should have broad auditing experi- ence and an ability to work effectively with company management. Just as financial auditors are familiar with the industry of the company being audited and the specific financial regulations covering that indus- try, environmental auditors must be familiar with plant processes, what envi- ronmental issues they raise and applicable regulations.

Before an audit, team members gather information about regulations and corpo- rate environinental policies, and the orga- nization, processes and layout of the facility being audited. Some auditors visit the facil- ity before the audit to further familiarize themselves with processes and environ- mental management systems. This infor- mation enables auditors to create an audit plan and assign tasks.

The protocol is the audit team’s indis- pensable guide for conducting the audit,

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and includes a plan for accomplishing audit objectives. A standard audit protocol can be modlfied for each audit “Maximum pro- tocols” list all possible audit procedures, while “minimum protocols” outline essen- tial procedures and include additional spe- cific procedures suited to the facility.

Once a t a facility, auditors generally begin developing a basic understanding of how activities affecting environmental per- formance are managed. Team members examine facility processes, internal man- agement systems, engineering controls, plant organization and responsibilities, the compliance framework, and current and past problems. Auditors conduct in-depth interviews, guided discussions and facility tours to obtain detailed information about key management and control practices.

Once a team understands how a facility intends to manage conipliance and perfor- mance issues, auditors review each area to determine whether the facility’s approach ensures compliance and protects the com- pany. It generally is easier to spot weak-

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Environmental audits nesses than to be certain that systems are adequate. Because no generally accepted standards exist for controlling environ- mental matters internally, auditors must rely not only on regulations, audit objec- tives and the company’s basic environ- mental philosophy, but on professional judgment as well.

Auditors’ initial conclusions shape much of the remaining audit process. If a facii- ity‘s internal control system appears sound, team members will seek to confirm that the system is being implemented, and will test its effectiveness and consistency. If internal controls are weak, auditors begin gather- ing evidence to support the facility’s com- pliance status.

Audit evidence is the basis on which teams determine compliance with laws: reg- ulations, corporate policies and other stan- dards, and confirm management strengths and weaknesses. Auditors use three approaches to collect evidence:

Inpity, or the use of b d interview, informal discussions and questionnaires;

Auditors must rely obswuation, where not only on regulations, verify more important,

auditors collect evi- higher risk issues and dence though what ~ d n aaft objectives and activities. be seen, heard and Working papers are touched (physical exam- @e C”fs basic carefully maintained by

auditors and are filed a t ination is one of the most reliable sources of environmental the completion of an evidence); and audit. These papers

vm@tim testing, philosophy, provide essential docu- which tests manage- mentation for future ment and other systems by verifymg paper trails, retracing data and re- include notes on per- computing calculations. sons contacted, discus-

Each audit uses these sions, records reviewed, methods differently For tests and conclusions. example, some audits Eqerienced auditors depend mostly on inquiry, which is easy, develop a format and style for their work- provides rapid feedback and requires fewer ing papers that is neat, logical and keyed resources. For each audit item, inquiry takes to protocol steps. minutes, observations can take tens of min- After all evidence is gathered, a team U t e s and testing can take hours. Verification reviews its findings to assess the signifi- testing becomes more important as audits cance of the evidence and decide if audit become more sophisticated. Auditors should goals have been met. Auditors typically plan their activities carefully to ensure they spend several hours discussing, evaluating

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and finalizing their findings. Auditors generally communicate their

findings informally to plant staff as the adit progresses, and verbally report all findings and observations to plant management dur- ing formal “exit” meetings. Wiitten reports are then drafted and submitted it to review- ers, such as a company’s environmental affairs and legal departments, and facility management. These reports promde man- agement with infomiation about the facil- ity’s compliance status and helps initiate corrective action, if warranted.

Companies often distribute the final report throughout their organizations, many disseminating the type of informa- tion and level of detail to match the respon- sibilities of staff members receiving the report. Some findings are of interest only to plant managers, while others require the attention of corporate management.

Audit reports are the prime way to con- vey results to management outside an audited facility, and provide the basis for any follow-up actions. Such reports must

be clear, concise and well organized. Final reports should be sent to facility managers soon after the audit, not months later when its findings may seem irrelevant.

Many companies provide a formal response to the audit report. In most cases, facility nianagers prepare these responses, which then are reviewed by line manage- ment and audit program managers. Com- panics assign responsibility for corrective action, determine potential solutions, pre- pare recommendations for correcting defi- ciencies and establish timetables. Follow-up activities are monitored by line manage- ment, with oversight from audit program managers.

Those embarking on environmental audits will find that, during the past 20 years, much has been learned about con- ducting audits that meet company needs and provide appropriate assurance. Envi- ronmental auditing has developed primar- ily as an internal company tool, and its emphasis is not on finding fault and assign- ing blame. Rather, audits are structured to

identify current problems so companies can take appropriate steps to maintain o r improve environmental performance, and protect their reputations and profits. 0

Maiyanne DiBerto is a director in Arthur D. Little Inc. 5- Envii*onmental, Health and Safety Pmctice in Cambridge, Mass., and mmages the cmpany ic. environmental, health and safity nriditing business sector. She also is vice president of’Ai-thui- D. Little Intemza- tional Inc.

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