Self-Evaluative Environmental Audits

Ethanol Industry GroupApril 1, 2010

Aurora, Nebraska

Overview

• Changing Role of Self-Evaluative Audits

• Compliance Audits versus Environmental Management Systems

• Benefits of Compliance Audits and Management Systems

Overview . . .

• Risks Associated with Audits and Systems

• Protection for Self-Evaluative Audits

• The Need for Federal Legislation

Changing Role of Self Evaluative Audits

• Command-Control-Punish Regime• Audit - Defensive Mechanism • Compliance Audit as the Sole

Component of the “System”

Influence of Multinational Enterprises

• “Eco-Auditing” -- “How a company proactively evaluates the impacts of its processes and activities on its external ecology and how management responds to those impacts.”

• Pro-Active Environmental Management• The Environmental Business Ethic

Environmental Management Systems

• Accounting Audits before the Great Depression did not Exist

• Modern Financial Management is Systematized

• Systematic Approach to Environmental Management

• Compliance Audit becomes One Component in the System

Compare and Contrast

• Compliance Audits– Snapshot in Time of Your Compliance

Status– Identifies Compliance Gaps– Identifies Areas for Improvement– Conducted at Regular Intervals– Written Report to Management

Compare and Contrast

• Compliance Audits - EPA Definition– Top Management Support and

Commitment– Function is Independent of Audited

Activities– Adequate Team Staffing and Training– Explicit objectives, scope, frequency– Process that collects, analyzes,

documents information

Compare and Contrast

• Compliance Audits - EPA Definition– “Specific procedures to prepare

candid, clear and appropriate written reports on audit findings, corrective actions and schedules for implementation.”

Compare and Contrast

• Environmental Management Systems– “That facet of an organization’s overall

management structure that addresses the immediate and long-term impact of the company’s products, services, and process on the environment.”

• Order and Consistency through– Allocation of Resources– Assigning Responsibilities– Continually Evaluating and Improving

Highlighting ISO 14001

• Voluntary International Standard for Environmental Management Systems

• Final Standard Promulgated in September 1996

• EMAS - Eco-Management and Audit Scheme -- July 1993

• EMAS Adopted as a Regulatory Measure by EU -- mandates continual improvement of Performance

Highlighting ISO 14001

• Main Components:– General Requirements– Environmental Policy– Planning the System– Implementation and Operation of the

System– Checking and Corrective Action– Management Review

Highlighting ISO 14001- Checking and Correcting

• “Establish and maintain documented procedures to monitor and measure, on a regular basis, the key characteristics of its operations and activities that can have a significant impact on the environment.”

Highlighting ISO 14001- Checking and Correcting

• Must have a “documented procedure for periodically evaluating compliance with relevant environmental legislation and regulations.”

• That is: Compliance Audit

Highlighting ISO 14001- Checking and Correcting

• Must have a record-keeping system which includes “training records and the results of audits and reviews”

• Records must be “legible, identifiable and traceable to the activity, product or service involved.”

Highlighting ISO 14000 Series

• Twenty Documents - Six Subject Headings– Environmental Management Systems– Environmental Auditing– Environmental Performance Evaluation– Environmental Labeling– Life-Cycle Assessment– Environmental Aspects in Products

Standards

Highlighting ISO 9001

• Voluntary International Standard for Quality Management Systems

• Fully Embraced by International Automobile Manufacturers

• Specific Standards for Purchasing and Control of Component Parts

• Market Forces Drive Adoption of the Standard

Comparing ISO 14001

• Must establish operational controls and procedures which help assure objectives are being met

• Establish and maintain “procedures related to the identifiable significant environmental aspects of the goods and services used by the organization and communicating relevant procedure and requirements to suppliers and contractors”– That is: control of vendors which means

auditing them!

Potential Benefits of an EMS

• Regulatory Relief– Assure Compliance– Qualify for 100% Waiver of Civil

Penalties– Relief under Sentencing Guidelines– Less Regulatory Scrutiny

Potential Benefits of an EMS

• Uniform, systematized approach– diverse facilities in different

jurisdictions– facilitate growth and acquisitions

• Ability to Compete in Domestic or International Markets

Potential Benefits of an EMS

• General Benefits– credibility - conform to recognized standard– profits - customers who prefer “green”

things– efficiency and savings from improved

internal management– community and shareholder goodwill– high quality workforce– potential insurance benefits

Potential Legal Risks

• Regular Periodic Documented Self-Evaluative Audit– Supply the Rope the Jury may use to Hang

You

• Industry or Normative Standards are being Created– Failure to adopt EMS may be deemed

negligence– Failure to correct compliance gaps may be

deemed negligence

Potential Legal Risks . . .

• Third Parties and Employees• Regulatory Agencies

Nebraska’s Audit Privilege and Immunity Law

• Concept is Not New - Analog in Medical Context

• Rewards Responsible Behavior by– Granting an Evidentiary Privilege

against use of Reports in Court– Providing immunity for prompt self-

reporting and corrective action

Practical Tips on Use of the Audit Law

• Obtain a “specific written directive” from management to review compliance

• Always date and label report as a “Confidential Environmental Audit”

• Label drafts and interim communications as “Confidential”

• Audit must be voluntary or self-initiated• Include compliance audit as part of EMS

audit

More Tips … the Privilege Part of the Law

• Make good faith efforts at compliance within a reasonable amount of time

• Don’t try to use the audit to hide information

• Privilege may not apply in the case of– significant adverse impact - actual or likely– water contamination

• Court makes these determinations

More Tips … Exclusions from Privilege

• Required audit reports• Grants and financial assistance• Regulators obtain information on

their own• Obtained from any independent

source

More Tips … Privilege from Testimony

• Audit team and reviewers cannot be compelled to testify

• Express waiver of privilege only by person for whom audit is prepared

Tips on the Immunity Part of the Audit Law

• Make prompt written disclosure of “possible violations”

• Make disclosure within 60 days and before agency learns on its own

• Only applies to problems discovered through self-audit

• Be diligent in pursuing compliance and corrective action

More Tips … To Get Immunity

• Be cooperative with NDEQ• Be able to demonstrate good faith

efforts to understand and comply• Don’t be guilty of willful or knowing

violations• Don’t have violations that result or

likely result in significant environmental impact

More Tips … To Get Immunity

• Immunity won’t apply to violations of consent orders, or other court or administrative orders

• Agency makes all of the above determinations

More Tips … What You Get

• Relief from Gravity Based Civil Penalties

• No relief from Economic Based Civil Penalties

• No relief from Criminal Plea Agreements

EPA Audit Policy

• Not a Law or Regulations • Not Enforceable against the EPA• Substantially Different

Requirements for Immunity• No Privilege on the Federal Level• EPA hostile toward state privileges

The Need for Federal Legislation

• Federal law of privileges applies in federal court

• State privileges may not be and often are not honored

• This leads to a trap for those who rely on state law privileges

Conclusion

• On balance, doing audits is better than not doing them

• Self regulation leads to less scrutiny and greater freedom

• Encourage Use of the audit privilege and immunity law

• Encourage adoption of federal legislation