Report to

        230385001                 u-s- Environmental
                                    Protection Agency
                                    December 1984
Benefits of
Environmental Auditing

Case Examples
                    Arthur D. Little, Inc.
                    Center for Environmental Assurance
                    EPA No. EPA-230-03-85-001
                        Protcction
             2oO South Dr-^.n n-f-^t
             Ciiicago, Illinois 66604"""

-------
                                 NOTICE
This report has been prepared by Arthur D.  Little,  Inc.,  under  contract
No. 68-01-6715 for the Regulatory Reform Staff, Office of Policy, Planning,
and Evaluation, U.S.  Environmental  Protection Agency.  The report reflects
the findings  and conclusions  of the author and not  necessarily those of EPA
or any other government entity.
  Arthur D. Little, Inc.

-------
                          TABLE OF  CONTENTS


                                                                     Page

I.    INTRODUCTION                                                    1

     Background                                                        1
     Approach                                                          2
     Context for Environmental Auditing Benefits                         3


II.   EXAMPLE BENEFITS                                                6

     Current Compliance Status                                          6

         Nonprocess  Water Discharge                                    7
         Unregistered Treatment, Storage, and Disposal Facility          7
         Correction of Deficiencies Prior to RCRA State Inspection       7
         Exceedances in POTW Requirements                             8
         Unpermitted Air Source                                        8

     Environmental Awareness and Training                              8

         NPDES Permit Deficiency                                       9
         Deficiencies in Spill Prevention and  Control Equipment           9
         Unidentified Process Stream                                   10
         Improvements in Groundwater Monitoring Equipment            10
         Training of a Pool of Auditors                                10
         "Boning Up" on Regulations                                   11

     Risk Assessment                                                   11

         Relocation of a PCB Transformer                              12
         Relocation of a Hazardous Waste Storage Area                  12
         Inadequate Management  of Hazardous Material                  13
         Leachate Collection and Treatment Practices                    13
         Discovery of Leaking Underground Storage Tanks              13
         Identification of an Inactive Disposal Area                     14

     Operations and Maintenance                                        15

         Audit of a Facility that  is Frequently Inspected by the State   15
         Improper Operation of Control Equipment                      15
         Maintenance of Dikes Around Bulk Oil Storage  Tanks           16
         Leaks in Containment                                         16
  Arthur D. Little, Inc.

-------
                     TABLE OF CONTENTS (Continued)
      Monitoring, Data Collection,  and Recordkeeping                     17

          Inadequate Monitoring Equipment                              17
          Documentation of Water Discharges                            17
          Preparation of Discharge Monitoring Reports                   18
          Undetected Discharge to a Sewer                              18
          Identification of Exemplary Practices                           19
          Responsibility for Hazardous Wastes Reporting                 19

      Environmental Management Systems                                 19

          Increased Formality of Plant-Level Procedures                  19
          Adding Plant Environmental Staff as a Result of an  Audit       20
          Plant Managers Audit Other Facilities                          20
          Improved  Credibility of the Audit  Program                     20
          Acquisition Audit                                             21
          Audit Program Improvements                                  21

      Information Sharing and Communications                            21

          Audits Communicate  Corporate Environmental Commitment        22
          Communicating Information to Senior Management               22
          Sharing Audit Results with  Other  Plants                       22
          Groundwater Monitoring Data                                  23
          Informing Management of Good Practices                       23

      Other  Types of Benefits                                           24

          Cost Savings from Waste Segregation                           24
          Reclaiming Waste  Oil                                          24
          Emergency Response Preparedness                             25


 III.  CONCLUSIONS                                                     26

      The Bottom Line:   Auditing Works                                  26
      The Level of Benefits  Varies                                       27
/L Arthur D. Little, Inc.

-------
                            I.   INTRODUCTION
BACKGROUND

     In  recent  years, as more and more environmental audit programs have
been established, a  growing body of literature on the  subject  has emerged.
However,  little has  been written  describing the benefits of environmental
auditing except studies to identify,  in  general terms, the benefits to indus-
try, to the environment,  and to regulatory agencies.

     One of these studies  examined the  benefits to industry  of environ-
mental auditing and  concluded that  the benefits to industry fall into two
broad categories:  increased  environmental  management effectiveness and a
feeling of increased  comfort  or security.   Auditing increases  management
effectiveness by identifying deficiencies and  weaknesses  that are corrected,
providing  assistance  to  facility  management, increasing the level of  envi-
ronmental  awareness, and  accelerating  the  development  of environmental
management  systems.  Auditing provides increased  comfort  because it identi-
fies and documents  compliance status,  improves overall environmental per-
formance,  improves the environmental risk management  system, and provides
protection from potential liabilities.
                     2
     A second study  examined the benefits of environmental auditing to the
environment and to the government.   That study concluded that  the  benefits
to the environment are that environmental audits identify pollution problems,
provide  a  mechanism  for problem control or  elimination, and allow for antici-
pation and mitigation of environmental risks.  It also identified the benefits
of environmental auditing to regulatory agencies as  better assurance  of com-
panies' compliance,  more efficient use  of  government resources,  improved
cooperation with  companies, more realistic definitions  of compliance, and
useful information about  audit  systems and compliance status.
 Benefits to Industry of Environmental Auditing, Center for Environmental Assurance, Arthur D,
Little,  Inc., August 1983 (EPA Report No. 230-08-83-005)
2
 Environmental Auditing Programs;  Benefits to  the Environment  and Government,  Edwin H. Clark
for Sterling Kobe Corporation,  June 1983 (Report to  l).S.  Environmental Protection Agency's
Regulatory Reform Staff)
/1L Arthur D. Little, Inc.

-------
     Together, these earlier  studies provided  an assessment of the potential
benefits  of environmental auditing.  They  describe the  aspects and kinds of
outputs of environmental audit programs that  contribute significantly to  the
achievement of corporate, environmental,  and  regulatory objectives.  They
did not, however,  provide specific examples of  actual benefits or  beneficial
outcomes of environmental auditing.  The  purpose of this report is to  fill
that gap by  describing  concrete examples  of benefits actually resulting  from
individual audits and audit systems.  This report does not, however, attempt
to quantify the benefits from an  individual audit or the benefits  achieved
over the long run  from established audit  programs.   Nor  has  the  environ-
mental performance  of organizations with auditing programs  been  compared
with the environmental  performance of organizations that have not established
environmental auditing programs.

     This  report  documents  the  benefits  of  environmental  auditing as
reported by managers responsible  for their organization's environmental  audit
program.   In  some cases,  the examples illustrate actual  benefits derived from
individual audits, while  in other cases  the benefits result  from having con-
ducted a number of audits over  a period  of time.   The example  benefits
described in this report also provide insight into how environmental auditors
conduct their field work, what type of  situations they are  likely to uncover,
and  how facility-level environmental management can improve as  a  result  of
an audit.
APPROACH

     To  carry out this study,  representatives of  23  organizations  were
interviewed.  Most of these organizations have  established internal environ-
mental audit programs;  however, some of the organizations contacted have
used third-party environmental auditors to either conduct  their audits or to
supplement their in-house  auditing  efforts.  The organizations  contacted
comprise a  diverse cross-section of industry, including the aerospace, auto-
motive, chemicals,  electric utilities,  electronics,  forest products,  glass,
measuring  and scientific equipment,  metals,  medical  products,  office equip-
ment and computers, petroleum, and Pharmaceuticals segments of industry.
In addition, several  public-sector organizations that have  implemented  an
environmental audit program were contacted.  Virtually all of the  individuals
contacted indicated that they  felt their environmental  auditing program  had
resulted  in significant benefits to their organization.

     Most representatives of the companies  contacted regarding their partici-
pation  in this study were  pleased  to participate.   Many audit managers
indicated they were in favor of  studies that  would  further  a better  under-
standing of environmental auditing.  However, several of the audit managers
contacted expressed  some  concern about  the  study.   One  common fear was
that  any series of  case examples of inappropriate  practices  identified  during
environmental audits  could  mislead the reader into believing that noncompli-
ance is widespread in many industrial  settings while, in fact,  most environ-
mental audits confirm that plant  activities are in compliance.  In a few cases,
companies  refused  to participate in the study because  they feared  that  a
/tL Arthur D. Little, Inc.

-------
 study of this nature would somehow be used to further efforts to establish a
 mandatory auditing requirement.   Most organizations, however,  believed  that
 they  had benefited  significantly from their environmental auditing efforts and
 were  happy to share examples of those benefits.

      In  examining the benefits of environmental auditing, the word  "benefit"
 was interpreted  broadly to include those aspects or outcomes of environ-
 mental auditing viewed  as beneficial by  the audit program managers con-
 tacted.  This study did not  attempt  to quantify or verify the extent of  the
 benefit(s) received.  Rather, the goal was to develop descriptive examples of
 the range and variety  of benefits accruing as a result  of environmental
 auditing.  Thus, for purposes of this study, benefits were assumed  to be in
 the eye  of the beneficiary.

      Because  this survey focused on individuals responsible for their organi-
 zation's  environmental  audit  program, most  of  the benefits were reported
 from  the perspective  of the  organization that has undertaken  the  audit.
 These case  studies are presented  from that perspective  and, where appropri-
 ate,  the case examples  are augmented  with  a  brief  discussion of potential
 benefits  to other parties, based on an analysis  of the outcomes  or aspects of
 the audit situation.

      Each  example  in this report is  presented  as a brief case  study that
 describes the situation,  identifies the beneflt(s) as seen by the respondents,
 and describes the  role  that  the  environmental auditing program played  in
 achieving the benefits.


 CONTEXT  FOR ENVIRONMENTAL AUDITING  BENEFITS

      The benefits of environmental auditing can be as wide and  varied as the
 nature,  organization,  and  objectives of  existing audit programs.  Benefits
 can range from the negative  task  of uncovering  specific problems  to the
 positive  feeling of  increased  comfort;  from  situations  that benefit  many
 parties (e.g., company,  environment, regulatory  agencies,  public) to those
 that  benefit  only one;  from  actions resulting from an  individual audit to
overall program results;  and  from those things influenced solely by the audit
 program  to  those things  for  which the audit program is one of  several con-
tributing factors.   These issues  are sufficiently complex to warrant  a brief
 discussion before describing the case examples.

     •    Negative  Nature of Auditing

     Environmental  auditing,  indeed any  type  of  auditing,  is by its very
nature somewhat negative.  The basic purpose of  most audits is to determine
or confirm that  systems  are in place and functioning properly.   To  accom-
plish  this objective, auditors in many of  the more advanced audit programs
examine  in detail selected aspects of the management and control systems.
While  the audit  effort involves considerable  time   spent  determining  com-
pliance,  the audit report often focuses  on deficiencies.   The presumption is
   Arthur D. Little, Inc.

-------
that line management has  instituted systems  and procedures to achieve
compliance and, while the auditors spend a significant amount of their ener-
gies confirming this,  their job is  to find and report deficiencies where they
exist rather than  to evaluate day-to-day management.

     This concept  has major implications in understanding the benefits that
result from environmental auditing.   Because the  audit is aimed at uncov-
ering deficiencies  where they exist,  the  best  possible  outcome  of  an indi-
vidual audit is frequently a report stating "no exceptions noted."  If a plant
is 99% in compliance  and the audit team finds  one minor recordkeeping dis-
crepancy,  it is commonly the discrepancy that gets reported, not  glowing
comments about the plant's superior environmental performance.

     As  a result,  many specific examples of  "benefits" of environmental
auditing provided  for this  study were stated in the context of finding prob-
lems.  While these examples are important  aspects of the benefits of  audit-
ing, they must be balanced with an understanding that in the vast majority
of cases the problems identified are  far outweighed by  the  good environ-
mental practices observed.   This point  was emphasized time and again by the
audit program  managers contacted during this study.

     •    Parties Affected by  Audits

     The outcome  of  an  environmental audit can potentially benefit  a variety
of parties,  including  the company, regulatory  agencies,  the public, and the
environment.   While different  parties may be affected by an  audit,  it is not
always clear which party benefits  from a  specific situation.  Even within
these groups,  what is seen as a benefit by one individual  is not necessarily
seen as  a benefit  by  another.  For example, if an audit results  in a decision
to formalize certain plant-level procedures,  this may be seen as a benefit to
the corporate environmental manager, while the plant  manager may  think the
current  procedure  works just  fine and  the new one only requires more time
and  paperwork.

     Many of the case examples identified during  this study were potentially
beneficial to several  parties.   For example,  any  situation  where an audit
identifies a compliance discrepancy which is  subsequently corrected may, in
the context of  the  previous benefit studies mentioned above, be viewed as  a
benefit to industry (improved compliance  performance), to the environment
(problem identification and  control or elimination),  and to regulatory agencies
(better assurance  of company's compliance).  As a result of this overlap,  no
effort was made to categorize the case examples  by the benefiting  party.
Instead,  this study attempts to note where one party in particular benefited.

     •    Link  to the  Environmental Management System

     Environmental auditing is widely recognized  as one component of an
organization's  overall  environmental  management  system.   There is  an
inherent  difficulty  in  trying to describe the  benefits of one component of a
system,  since  audit objectives are also objectives of other environmental
management activities.
   Arthur D. Little, Inc.

-------
     This difficulty is magnified by the fact that a number of environmental
audit programs  do not  routinely include problem solving or recommend solu-
tions as part of their work scope.  The responsibility for corrective action is
most  commonly assigned to line management and outside  the  scope of the
audit program.  In such situations, the auditor's task is done when the facts
are reported.  Here again, there  is a tendency to describe the benefits of
auditing in terms  of the problems identified.

     The  case  examples described in  this  report  are  ones for which an
environmental audit, or series of audits, is either the principal source of, or
a significant contributor toward, the  beneficial  aspect  or outcome.   In some
cases the  audit is the  sole contributor—such as  when an audit team finds an
unknown problem  which is immediately corrected.  In other cases,  the rela-
tionship is less  direct, such  as when  an  audit  provides added incentive to
accomplish a previously planned action (e.g.,  installation of a new piece of
equipment  or implementation  of a new procedure).   Between these  two
extremes,  the  audit can contribute  to environmental benefits in  a wide
variety of  ways.
   Arthur D. Little, Inc.

-------
                         II.    EXAMPLE  BENEFITS
     This  section of the report presents  41  examples of specific benefits,
which  are  grouped under the  following categories:

          Current compliance  status
          Environmental awareness and training
          Risk assessment
          Operations and maintenance
          Monitoring, data  collection,  and  recordkeeping
          Environmental management systems
          Information sharing  and communications
          Other types of benefits

     It is  important  to note that  a particular situation might fit more than
one  category.   To illustrate this, consider an audit  that causes  a plant
operator to correct  a compliance  deficiency where the operator  was unaware
of the regulatory  requirement.  This situation could be an example  of "iden-
tification  of compliance  status"  or "awareness of environmental considera-
tions."  In situations such  as this, the example  has been included in the
category that best reflects  the manner in which the audit program  manager
described it.
CURRENT  COMPLIANCE STATUS

     Because  the principal focus of most environmental auditing  programs is
to determine the compliance of operating facilities, virtually  all audits  result
in a statement of compliance status.  This statement is based upon a review
of the current  practices and  procedures in place at the facility vis-a-vis
federal,  state, and local regulatory requirements.  This  section presents five
case examples that  illustrate the range of compliance related  benefits that are
derived from environmental audits.   (Note:   Subsequent  sections also include
compliance related audit findings that lead to benefits in other categories.)
A± Arthur D. Little, Inc.

-------
Nonprocess Water
Discharge
Unregistered Treat-
ment,  Storage,  and
Disposal Facility
Correction of
Deficiencies Prior to
RCRA State Inspection
At a scientific instruments  plant in Maryland, the
environmental audit team found that nonprocess
water was being discharged to the  storm  sewer
instead of the sanitary discharge.  This was dis-
covered by  reviewing the plant's sewer diagrams
and physically observing the discharge points.
As a result  of the  audit, efforts  were initiated
immediately  to obtain approval from the local pub-
licly owned  treatment  works (POTW) to include
this waste stream in the  plant's  sanitary dis-
charge.  Within two months, all  of  the necessary
changes were made to discharge the nonprocess
water to the POTW.  The audit benefited the com-
pany by identifying a noncompliance situation that
was corrected  and  benefited the environment by
causing the discharge to be rerouted to the
POTW.

A chemical manufacturing plant in the Northeast
operates a waste disposal facility that handles the
company's out-of-date material.  Out-of-date
material from  several other plants owned by  the
company is  also sent to  this facility for disposal.
Materials treated at the  facility include mercury
compounds and other hazardous  wastes.   An envi-
ronmental audit conducted by the company
reviewed the hazardous  waste management activi-
ties of the plant and determined the plant was not
registered as  a treatment facility.   The plant
subsequently  applied for registration as a hazard-
ous waste treatment, storage,  and disposal facil-
ity.  Not only did  the company benefit by cor-
recting a noncompliance  situation, but the regu-
lators also benefited through the registration of a
facility which otherwise  might have continued to
operate without the regulatory scrutiny resulting
from compliance monitoring  activities.

During a 1983  audit of a coatings and resins
facility, the audit  team,  following the  company's
standard audit checklist, found a number of rela-
tively minor discrepancies in the  area of hazard-
ous waste management.  (For example, training
program documentation was incomplete.)   Two
weeks later, the facility was visited by the state
RCRA inspector, who  spent twice as long as usual
(about four  to six  hours) and,  unlike previous
visits,  did not come up with any  findings.
During the  two-week period after the internal
audit,  the plant had corrected all of the deficien-
cies identified  by the  audit team.  Following the
state inspection, the audit  team leader received  a
A Arthur D. Little, Inc.

-------
Exceedances in  POTW
Requirements
Unpermitted  Air
Source
telephone call and then  a letter  from  the plant
manager thanking him for the efforts of the team.
The audit benefited the company by helping bring
about more  favorable results  in the state inspec-
tion and benefited the environment by bringing
about faster correction of regulatory  deficiencies.

The audit program manager of a large conglomer-
ate  reported that internal environmental audit
teams have  found several cases where facilities
have exceeded local POTW sewer ordinance
requirements.  Because  local  authorities were not
enforcing the local sewer ordinances, the facilities
were exceeding several of the ordinances' para-
meters.  The audit team identified these excep-
tions through an in-depth review of sampling and
analysis records, pH strip  charts, and reports to
the local agencies.   The exceedances  were
reported to company  management.  Reports  to
local authorities now  identify  all excursions
beyond the  ordinance parameters and, in some
cases,  the facility has been granted in writing a
deviation from  a  specific parameter.

At a chemical plant in Ohio, the audit team, fol-
lowing its formal audit protocol for air pollution
control,  found one air emission source that  did
not have a permit to  operate.  This source  was
found by reviewing the plant's emission inventory
and  visually observing the  actual air  sources both
in the  plant  and on the  roof.  Within several
weeks of receiving the final audit  report, the
plant submitted a permit application to the  state
agency.  Several months later, the plant received
a permit.  This benefited the company by elimi-
nating  the potential legal and public relations
liabilities that the unpermitted air  source posed.
It also benefited  the  environment and regulators
by bringing  this air  source explicitly under  regu-
latory and  compliance monitoring scrutiny.
ENVIRONMENTAL  AWARENESS AND TRAINING

     Virtually all  the audit program managers contacted mentioned  improved
awareness  as one of the  major  benefits  of  their program.  Frequently,
improved awareness resulted  from informing  plant management of regulatory
requirements of which they were  previously unaware.   In other cases,
audits resulted in improvements  in  plant environmental programs  which went
beyond specific regulatory  requirements.   In  yet  other  cases,  audits
heightened the awareness  of  staff temporarily assigned to the audit team.
  Arthur D. Little, Inc.

-------
 While not a principal  focus of most audit programs, opportunities for training
 occasionally  occur which  are viewed by the audit program as  beneficial.
 Program managers reported  that other  benefits accrued both  from formally
 training auditors  in advance and from "on-the-job" audit training.

     The following examples illustrate situations where a principal benefit of
 the environmental audit was  improved environmental awareness or training.
 NPDES Permit
 Deficiency
Deficiencies in Spill
Prevention and Control
Equipment
At a chemical plant in Pennsylvania,  the  audit
team, following  the company's formal  water pollu-
tion  control protocol, examined the facility's
NPDES  permit to ensure that all permit require-
ments were being complied with.   The auditors
first developed  a schedule of all permit require-
ments applicable to the facility and then
thoroughly reviewed the piping and sewer dia-
grams available  at  the plant.  Next,  they
inspected each of the drains and outfalls during
several  tours  with the plant environmental coordi-
nator.   As part of their review, the  auditors
found that the cooling tower blowdown and deion-
ized water regenerant were being  discharged
through an outfall that was permitted for storm
water only.  Facility management were aware that
this  practice was occurring but did not realize
that  it  was improper.   Shortly following the
audit, the facility  contacted the state regulatory
agency  requesting that the permit be revised to
include  the two  additional  wastewater streams.
Within several months,  the state issued a revised
permit.   This situation benefited  the  company by
identifying and  correcting a compliance deficiency
and raising the  awareness of plant management.
The  regulators and environment  also  benefited
from the submission of a revised  permit applica-
tion  that more accurately describes the facility's
discharges.

During  an environmental audit of an oil  pipeline
in Texas, an  auditor  was reviewing  the oil
storage  facilities at one of the pumping stations.
As prescribed by the company's environmental
audit protocol, the auditor physically inspected
the oil  storage locations to confirm compliance
with spill prevention and control  requirements.
As a result of this inspection, the  auditor found
that  several of the drainage valves in the earthen
dikes were defective or broken.   Additional
inquiry  revealed that the  station operator was
unaware of formal requirements for draining pro-
cedures.  Within several days, the defective
valves were replaced and  all of the operators at
A\± Arthur D. Little, Inc.

-------
Unidentified Process
Stream
Improvements in
Groundwater
Monitoring
Equipment
Training of a Pool
of Auditors
the facility were informed of the regulatory
requirements.  The benefit to  the  company of this
action was,  in  addition to correction of a com-
pliance discrepancy, improved  awareness and
understanding  of environmental considerations on
the part of the station operator.   This  situation
benefited the environment and regulatory agencies
in that a compliance deficiency and potential envi-
ronmental hazard were corrected.

At  a  medium-sized  saw  mill,  an  environmental
audit  team went through  a careful  examination of
all water  discharges from  the facility.   As a
result of  both  a  document review (looking at
sewer diagrams,  etc.) and physical inspection of
the piping and equipment, the auditors found that
the discharges  from the large  sawing equipment
were  properly  managed.  However, at one point
during the audit, they found that  the water used
for cooling and guiding one of the smaller saws
flowed into a pipe located in the basement of the
building and was then discharged  directly into
the storm sewer.  The audit team  leader brought
this to the attention of the mill manager,  who was
unaware that saw guide water  was  not being
handled as a process stream.   Within two weeks,
the necessary changes were made to divert this
stream into the facility's  process discharge.  Not
only was  a noncompliance  situation corrected,  but
a "blind spot"  was identified.

During an audit  of  a  hazardous  waste landfill  in
the East, the audit  team  physically examined each
of the  facility's  groundwater  monitoring wells.
The audit team leader found that the plastic cap
of one groundwater  monitoring well had been
sheared off.  Further investigation,  through  both
inquiry and  observation of tire marks near the
well,  revealed that this situation resulted from a
tractor operator who did  not understand the pur-
pose of the plastic tube.   As a result of the
audit, a new cap was  placed on the monitoring
well,  a concrete containment area was built
around the well,  and a program  was put in place
to educate operators on the nature and  importance
of the groundwater monitoring  equipment.

An electronic components  company  initiated a cor-
porate environmental audit program several years
ago.  Because  the program involved  selecting
individual audit team members  from a pool of
plant-level environmental  coordinators, formal
A Arthur D. Little, Inc.
           10

-------
"Boning Up" on
Regulations
training in auditing methodology and techniques
was  conducted for  nearly 50 potential auditors.
In addition to preparing each participant  to con-
duct an audit, the training has resulted in
several other benefits, according to the audit
program manager.  For example,  as a result of
auditing other facilities, each auditor is better
able to see and correct deficiencies at  his or her
own  plant.   In addition, several of the trained
auditors have since been transferred to other
departments  within the corporation  (e.g.,  pur-
chasing, manufacturing, etc.).   This has resulted
in spreading a sensitivity  for environmental con-
cerns to other parts  of the company.

A  senior environmental auditor at a large petro-
leum company indicated that one benefit of an
environmental auditing program is that  it  forces
auditors to "bone up" on regulatory requirements
in advance of an audit.  In particular,  the
auditor noted that  in preparing for several recent
audits,  a careful review of state regulations
revealed subtle requirements that the auditors
were not aware of.  These requirements were
added  to the audit  protocol used by the team in
conducting each audit.  This provided a benefit
to the  company in two ways:  It provided
increased assurance that the plant was  reviewed
for conformance with  all applicable regulatory
requirements, and  it  increased the skills and
knowledge of the corporate environmental  staff
members who were  serving as auditors.
RISK ASSESSMENT

     While  most of the participants  in  this study described the principal
focus of their  audits as regulatory  compliance, several described examples
where  environmental hazards were identified during the course of the audit.
In some cases, these hazards represented situations where the auditor antici-
pated future regulatory requirements to apply, while in other cases,  situa-
tions,  in the  auditor's  professional opinion, posed a potential  risk  to the
company and/or the environment, even  though they were not directly  related
to a specific regulatory compliance requirement.   Six case  examples of risk
assessment benefits of environmental audits  are presented:
   Arthur D. Little, Inc.
                                     11

-------
Relocation of a PCB
Transformer
Relocation of a
Hazardous Waste
Storage Area
During an environmental audit of a medium-sized
forest products facility, one of the team members
was  assigned to cover the plant's control program
for PCBs.  Following a  formal checklist, the
auditor reviewed documentation relating to PCB
control and then physically inspected each of the
transformers on-site.  During this inspection,  the
auditor noticed that one large PCB  transformer
was  located in  an area of the plant where  fork lift
trucks and other vehicles frequently  passed.
While the transformer appeared to be controlled in
accordance  with regulatory requirements (label-
ing, inspection, spill containment, etc.),  the
auditor realized that the location  of the transfor-
mer  posed a potential hazard because of the pos-
sibility of a vehicle collision.  The mill  manager
agreed with the auditor's observation.  As a
result,  a program was initiated immediately to
move the transformer to a more secure  area.
Within three months, the transformer was moved
to a new  location,  secured inside a newly built
shed,  and enclosed in a diked area.  The  prin-
cipal benefit of this action to the company was an
increased feeling of comfort  that a potential haz-
ard  was  reduced.   The  environment  also benefited
from the resulting  reduction of risks of a  PCB
spill.

A  team of company auditors  spent several  days
reviewing  the  air,  water,  and hazardous  waste
activities at a  Texas paint and  coatings plant.
Following their standard protocol  for  hazardous
waste management, the auditors developed  an
understanding  of the plant's practices for  collec-
tion  and storage  of wastes and then closely
inspected the  facility's  hazardous waste storage
area.  During  this inspection, they noted  that the
storage area location was such that a spill could
possibly reach  a  storm  water runoff ditch.  While
there was no regulatory requirement under the
facility's RCRA Part A  permit to put  secondary
containment around the  storage area, the audit
team felt  that  the situation posed a potential
hazard to the  company  and the environment.
They recommended that  the facility relocate the
hazardous waste storage area to a more secure
area.  Immediately  following the conclusion of the
audit, facility management initiated  steps to move
the waste storage area to a vacant building on
the plant site  which had a curbed concrete floor
and  a roof.  The move,  which involved not only
  Arthur D. Little, Inc.
                                     12

-------
 Inadequate  Management
 of Hazardous Material
Leachate Collection
and Treatment
Practices
Discovery of Leaking
Underground Storage
Tanks
relocating the  storage area but also revising the
RCRA Part A permit, was completed within sev-
eral months.  The move provided  facility and
company management with assurance that they
were exceeding current regulatory requirements
and reducing potential hazards to the environment
and the  company.

During an  environmental  audit  of an electronic
chemicals facility, the auditors discovered sub-
stantial quantities of material held for rework at
various locations throughout the facility.  The
material—in itself hazardous—was  not  considered
waste by the  facility and, therefore, was not
being stored, managed, or inspected in  accor-
dance  with RCRA requirements as were  the
facility's designated hazardous wastes.  The
auditors considered this situation  to be  a potential
environmental and loss prevention risk to the cor-
poration, and notified appropriate levels of man-
agement.   Management's attention  was  immediately
directed to the situation and the situation was
corrected.  The audit led to increased inspection
management and storage procedures for  the  mate-
rials, thereby  reducing the risks  of an inadver-
tent  spill  or  similar  environmental  accident.

The environmental audit program manager at a
large forest products company reported that  in
several instances, audits have identified activities
which are  not regulated in one state but are reg-
ulated in another.   As the result  of an audit of a
pulp mill in the South, the facility instituted a
procedure  to collect leachate from  a solid waste
landfill located on-site  and pump it into  the
facility's waste water treatment facility.   This
action  was not required in the state in which the
facility is located; however, because it is
required in other states, the audit team  leader
recognized this  situation as a potential risk to the
company and recommended that the change be
made.  The revised practice provides  greater
environmental protection as a result of treating
the leachate.

After revising  their audit  protocol to explicitly
investigate  underground storage  tanks  and the
availability of data to provide assurance  that the
tanks are not  leaking,  a chemical company's  envi-
ronmental auditors identified an underground gas-
oline storage tank during  a routine facility audit.
A Arthur D. Little, Inc.
           13

-------
Identification of an
Inactive Disposal Area
Because no data existed, the auditors included a
comment  that they were unable to  confirm the
integrity of the tank.  This led to the plant's
scheduling a leak test and  subsequent determina-
tion that the tank was  leaking.  The tank  was
removed  and replaced and a clean-up was con-
ducted.  Moreover,  as  news of the situation
traveled  across the  corporation, several other
plants scheduled leak testing on their own and at
least  one other plant discovered that it,  too, had
a leaking underground  gas tank which it cor-
rected.  The audit  program manager reports that
their environmental  audit program  has provided
benefits to the environment  and, in addition,  has
given them a head start on the regulatory  pro-
grams addressing leaking underground storage
tanks.

During their plant tour, environmental auditors
conducting an internal  audit of a chemical plant
located in an Appalachian state observed a small
brick wall located in a  portion of the property no
longer used for plant operations.  Their concern
and curiosity heightened when, upon closer
investigation,  they  noticed  that the vegetation
near the brick wall  was discolored.  The auditors
reported their observation in the audit report
with a recommendation that more information be
developed.   Through discussions with former
employees,  plant management learned that the
area had contained  an open, brick-lined pit that
had been used to contain process  waste.  How-
ever, the operation  had long since been shut
down by the company and the waste  tanks  forgot-
ten.  In  fact, the plant had done  its own investi-
gations both in preparation for the corporation's
audit and in response to inquiries  regarding past
waste disposal practices without identifying the
tank.  The  materials in  the pit were analyzed and
appropriate off-site  disposal was arranged.  The
materials were then  excavated and  transferred  to
a disposal site.  The company benefited from
identifying and addressing  a potential environ-
mental liability.   The environment  benefited from
transfer of the wastes to an appropriate disposal
activity.
   Arthur D. Little, Inc.
                                     14

-------
OPERATIONS AND MAINTENANCE
     Many of the audit program managers contacted during the course of this
study  noted that  in some circumstances, environmental  audits have led to
improved facility-level  operating and maintenance practices.   In  some cases,
the changes resulting from the audit involved installation of new engineered
controls, while in other cases the changes  were procedural in nature.  For
example:
Audit of a Facility
that is Frequently
Inspected by  the
State
Improper Operation of
Control Equipment
An environmental audit of a chemical plant  located
in a Northeastern state found that the audit team
was unable  to  confirm  that  several pieces of
installed air pollution control equipment  were
working properly.   While the plant had  undergone
several inspections conducted by the local air
quality agency, which had  been delegated compli-
ance monitoring authority by the state agency,
without notation  of any problems,  the auditors
viewed these inspections as largely "cursory" in
nature.  As a  result, they carefully  reviewed  the
air pollution control programs in spite of the
frequent inspections  with favorable results.   In a
review  of maintenance records, they  determined
that one piece  of equipment had been in operation
with a work order to repair it that had  been
pending for more than 12 months.   As a result of
the audit's  findings, the plant developed opera-
tional  procedures to better demonstrate and con-
firm that pollution control  equipment  was perform-
ing as intended.  This included development of
additional monitoring and recordkeeping  pro-
cedures and installation of  a  formal,  documented,
preventive maintenance procedure.

At  a lead battery plant,  an  environmental audit
team leader assigned one  team member the task of
completing the  section of the air pollution  control
protocol that involved a review of  the air permits
and related control equipment.   After examining
the permits and developing a schedule of all per-
mit requirements, the auditor physically  inspected
the air pollution  control equipment.   He  then
interviewed facility personnel about operating and
maintenance practices.  The auditor learned that
the facility's wet scrubbers were being operated
dry during  the winter months, in violation of the
air pollution control permit.   The facility had
experienced problems with the lines freezing in
the winter  which resulted in high maintenance
costs.   The situation was included in the audit
report  to management.  As  a  result of the audit,
/Ifci Arthur D. Little, Inc.
           15

-------
Maintenance of Dikes
Around Bulk Oil
Storage Tanks
Leaks in Containment
 the  scrubbers were winterized so  that they oper-
 ate year-round in  accordance with the permit.
 This benefited the corporation by correcting  a
 noncompliance situation  and benefited the environ-
 ment by the proper operation of the air pollution
 control equipment.

 An environmental team comprised of company
 environmental  staff and an environmental manager
 from another facility found several instances  in a
 large, Southwestern chemical plant where the
 diking that had been  installed  around bulk oil and
 chemical storage tanks was being  defeated by
 drain pipes and open  valves.   Present day corpo-
 rate engineering standards prohibit the use of
 drain valves in dikes.  However,  the plant had a
 number of older storage tanks  that had been
 diked with a provision for  draining accumulated
 rain water.  These situations  were identified  by
 the auditors following an audit protocol that spe-
 cifically calls for examination of the integrity  of
 dikes around bulk  storage  tanks.  The  situation
 was  reported to company management,  and local
 management instituted a number of procedures to
 insure that the integrity of the dikes was  being
 continuously maintained.  The new procedures
 included a program of regular inspections and
 installation of large indicators visible from the
 plant roads to clearly  indicate whether the drains
 are open or  shut.

 An environmental audit of a sulfuric acid plant
 found that the integrity of secondary containment
 at a  tank farm was inadequate because the con-
 tainment was built  from  alkaline waste material.
 This finding resulted  from  a rigorous examination
 of spin  prevention  control facilities and pro-
 cedures following a formal audit protocol.  After
 careful review of the plant's oil and hazardous
 materials spill prevention plan, the auditors
 visually inspected the  storage locations.  During
 their inspection,  they  noted holes  in the secon-
 dary containment resulting  from acid storage.   In
 addition, the audit team found that the  tank farm
 was located near a  waterway.  The findings were
reported to management  and a more acid-proof
 secondary containment was  installed.  Both the
company  and the environment should benefit by a
reduction of  risk.
/&. Arthur D. Little, Inc.
           16

-------
MONITORING,  DATA COLLECTION, AND  RECORDKEEPING
     Environmental audits frequently  identify opportunities for improvements
in monitoring and data collection activities  at operating facilities.  In some
cases, this results from  finding out-of-compliance  situations,  while in other
cases, improvements result from recommending new practices  not  required by
regulations.   For example:
Inadequate Monitoring
Equipment
Documentation of
Water Discharges
During an audit of an industrial  chemical  plant
located in the Midwest, one  of the team members
had primary responsibility for reviewing the
plant's water pollution control activities.  After a
careful review  of the NPDES permit requirements
and the facility's documentation for discharge
monitoring and analysis,  the auditor concluded
that facility  personnel were  monitoring and
recording the effluent flow as required by the
NPDES permit.   Further  investigation and obser-
vation revealed,  however, that the normal volume
of effluent substantially exceeded the capacity of
the weir to  measure the flow.  This resulted in
grossly inaccurate  reporting of the volume of the
discharge.  This finding was included in  the
audit report to company management.  As a result
of the audit, a proper weir  was installed.  The
situation had not been detected by regulatory
inspectors.   As a result  of  the audit,  the equip-
ment  was corrected and  more accurate information
was reported on  the plant's  discharge monitoring
reports.

During an environmental  audit of a chemical solu-
tion mixing  plant,  the audit  team reviewed all of
the plant's water discharges in accordance with a
formal audit  checklist.  Upon questioning the
plant environmental coordinator, reviewing the
sewer diagrams,  and inspecting the outfalls, the
auditors learned  that the plant discharges its
process effluent  to a local publicly owned treat-
ment  works  (POTW) and  the "clean" waste water—
such  as noncontact  cooling water—through a per-
mitted outfall to  a  nearby river.  Further investi-
gation revealed that both discharges converge in
a common pipe  and, at the end of  that pipe, a
diversion valve is used to direct the waste stream
to either the POTW or the river.   Previously, the
plant had discharged all of its water to the
POTW;  however,  when the POTW became volumet-
rically limited several years  ago, the  plant
obtained an  NPDES permit and began  discharging
its  noncontact cooling water  to the river when
contaminated wastewater was not being dis-
A Arthur D. Little, Inc.
           17

-------
Preparation of
Discharge
Monitoring Reports
Undetected Discharge
to a Sewer
charged.   While the plant appeared to be opera-
ting in full compliance with regulatory require-
ments,  the auditors were concerned that the plant
had  no formal records documenting that they  were
in compliance.   As a result of the audit,  facility
management immediately  instituted a new operating
procedure  whereby all discharges were logged in
a book  which also recorded any  changes in the
diversion valve.   Less than six  months later, a
regulatory inspection resulted in inquiries about
past operating practices, and the facility was able
to demonstrate that  they were, in fact, operating
in compliance.   Thus, the audit  not only  bene-
fited the company but also benefited the regu-
lators by causing additional information to be
available for review.  The audit also resulted in
benefits to the environment by providing greater
assurance that the facility's effluent was being
appropriately discharged.   Since that time, the
two  sewers have been segregated  so that there is
no longer a need for the diversion valve.

At a small  forest products plant  in the South, the
audit team found that the operator responsible for
preparing the quarterly discharge monitoring
reports was not physically measuring  the effluent
pH.   This  situation  was uncovered as  a result of
reviewing past DMRs and talking with  the  opera-
tor.   The operator was  unaware  that this was
required, and informed  the auditor that nobody
had  ever before told him that his  current practice
was  incorrect.   As a result of the audit,  a pro-
cedure  was implemented  to ensure proper analysis
and  reporting of effluent data.

During  an  environmental audit of a sulfuric acid
plant,  the  audit team found that  the plant's efflu-
ent monitoring station had been  installed at a
point in the  sewer system where it was not pro-
viding representative information on the dis-
charges.  An acid waste stream  going  to the
sewer was  located downstream of the plant's
effluent monitoring station.  This  was  found by
touring the plant several times and carefully
reviewing the sewer diagrams provided by the
plant engineering department. The situation was
reported to management  as part  of the audit
report and steps to  correct the situation have
been taken.
A Arthur D. Little, Inc.
           18

-------
Identification of            During an environmental audit of a power plant in
Exemplary Practices        the South,  one of the  auditors noted that the
                           maintenance and calibration procedures for the
                           facilities' continuous emission monitoring equip-
                           ment were leading to a higher level of reliability
                           (about 96%)  than that  required by regulations.
                           One of the  auditors conducting this audit had
                           previously audited a number of other  power
                           plants owned by the company, and recognized
                           this situation as particularly noteworthy.  As a
                           result of the audit, those procedures  were imple-
                           mented in other sister plants.

Responsibility for          At a chemical  plant in California, an environ-
Hazardous Wastes          mental audit team found that the facility's internal
Reporting                 practices for managing hazardous wastes  did not
                           assure that required monthly reports to the state
                           were accurate and timely.  Through a review of
                           the monthly reports and the  facility's  manifest
                           file, the  audit team noted that a  number  of
                           reports were not submitted and several shipments
                           of hazardous wastes were  not recorded in those
                           reports that were submitted.  This was due in
                           large measure to the fact  that the responsibility
                           for completing the monthly reports rested with
                           three people.   As  a result of the audit, respon-
                           sibility for  completing  the monthly report was
                           clearly delegated to one individual.

ENVIRONMENTAL MANAGEMENT SYSTEMS

     Environmental audits  frequently result in,  or  contribute  to,  changes
and  improvements in corporate or facility environmental management  systems.
These changes can include organization  and staffing changes as well  as
improvements in  such things as reporting  practices,  policies and  procedures,
or even improvements in  the audit program itself.  For  example:

Increased Formality of     The environmental audit program manager of a
Plant-Level Procedures     large diversified corporation  noted  that since its
                           initiation  several years ago,  the  environmental
                           audit program has been the major influence in
                           increasing the formality of plant-level  procedures
                           for managing environmental activities.   A section
                           of the company's formal audit protocol addresses
                           the adequacy of such  procedures at each facility
                           audited.  In many cases,  these procedures are
                           not required by regulations.   As a result  of the
                           environmental audits,  specific procedures have
                           been developed which identify regulatory require-
                           ments, define individuals responsible for  specific
                           tasks, and  describe the reporting and documenta-
                           tion required.


/Hi Arthur D. Little, Inc.                   19

-------
 Adding Plant Environ-
 mental Staff as a
 Result of an Audit
Plant Managers Audit
Other Facilities
Improved  Productivity
and Credibility
 During an April 1984 environmental audit  of a
 sanitary landfill in Colorado,  the auditors noted  a
 permit  condition about which  the plant manager
 was unaware.   The operating permit stated that
 the facility would  comply with the  engineering
 report  prepared by an outside firm prior  to sub-
 mittal of the permit application.  After reading
 this statement, the auditors carefully reviewed
 the engineering report.   The report stated that
 the facility would  employ a full-time individual  to
 collect  litter and also install  a windscreen around
 the perimeter of the facility.   However, current
 practice was to hire temporary help through Man-
 power to  perform the task of litter collection.   As
 a result of the audit, the  facility hired a  full-time
 "litter picker" (before the final audit report was
 issued) and has budgeted for a litter fence in
 1985.

 A company that  includes on the audit team an
 environmental  manager from a plant other  than
 the facility being audited has found that a num-
 ber of benefits result from the other manager's
 participation.  Not only does  the participation
 help in making the audit a "peer review" but also
 provides a vehicle for learning about other facili-
 ties' environmental programs  and procedures.   As
 a result of participating  on an audit  team, plant
 environmental managers  have  a chance  to see dif-
 ferences in state requirements, local procedures,
 and managerial  style.   In one audit,  the environ-
 mental manager who served as a  team member was
 so  impressed with  the spill control  procedures he
 was auditing that he went  back to  his own plant
 after the  audit  and instituted  similar measures.
 The program manager reports that  environmental
 staff from  other plants are often  the toughest
 critics.  He believes that participation of other
 plant's  environmental  staff has hastened the
 development of  more formal environmental control
 systems within his company.

 An environmental auditor at a large petroleum
 company reported that one of  the most  important
 benefits derived from  the program is the improved
 effectiveness in reviewing environmental perfor-
 mance that results  as  follow-up audits are  con-
 ducted.  Not only  does it become easier to con-
 duct an effective audit the second time around,
but also the  facility management and staff  often
  Arthur D. Little, Inc.
                                     20

-------
Acquisition Audit
Audit Program
Improvements
have  greater confidence in the  auditor's technical
ability and in the value of an internal review of
the facility's compliance status.  This benefits the
company's environmental management system in
that audit results are more quickly developed and
accepted.

As  a  result of  an environmental audit of a
recently acquired foreign  subsidiary, the auditors
of a U.S. based  multinational company determined
that the newly  acquired plant included a former
landfill  located  at the plant site.   However, no
one at headquarters  was aware, at the time of
acquisition, that  the  situation existed.  To avoid
this kind of future surprise,  the company  has
implemented a corporate procedure that requires
on-site  environmental assessments  of all new
acquisitions prior to  purchase.   The objective of
the on-site review is to ensure  that  the company
knows what it is buying before it  buys it.

The audit program manager at an electronics com-
pany  reported  that they have made numerous
improvements in their audit program since it was
initiated several years ago.  After several audits,
they attempted  to shorten  the length of time in
the field, and learned that this detracted from
the audit.  They now provide for  about 20 person
days  of field work for an  average-sized plant.
Also,  the experience  of audits continues to result
in changes in their formal audit protocols.
Finally, to  ensure audit quality, the team leader—
who formerly had responsibility for a major  sec-
tion of the audit  (e.g.,  air pollution control)—
now functions primarily as  a leader,  supervising
the team, reviewing the work of the audit team
members, monitoring  progress,  and helping out
where needed.
INFORMATION  SHARING AND COMMUNICATIONS

     Many  of the  audit  program managers contacted mentioned that audits
frequently  result in improved  communication.   The  improved communication
can be between company management  and facility management, among differ-
ent facilities, or between the company or  facility and an outside party, such
as a local regulatory agency.  For example:
/Hi Arthur D. Little, Inc.
           21

-------
Audits Communicate
Corporate Environ-
mental Commitment
Communicating
Information  to Senior
Management
Sharing Audit Results
with Other Plants
 The audit  program manager of a large chemicals
 company reports  that  his  company's three  and
 one-half year old environmental audit program has
 served to  reinforce the company's environmental
 policy.  The audit teams, comprised of high-level
 personnel, provided tangible evidence at  the
 working levels of the  corporation's commitment to
 comply with environmental  regulations and to con-
 duct  all of its  affairs  in  an environmentally
 responsible manner.   The audit manager feels that
 the program was introduced at  an especially
 appropriate time in that  several employees were
 beginning  to get the impression that  the country's
 environmental priorities were being relaxed while
 company environmental management had consis-
 tently stated that this was not  the case (and have
 received assurances from senior management).
 The cost containment  procedures  prompted by the
 recession created mixed signals, especially where
 environmental performance  was concerned.  The
 audit program  clearly  reinforced the company's
 long established commitment to environmental
 assurance.

 At  a large diversified corporation  which has had
 an  environmental  auditing  program for  more than
 five years, the results of individual audits  are
 routinely reported to  senior management,  and
 summary reports are provided to  a committee of
 the Board  of Directors.  The audit program  man-
 ager indicated  that significant benefits have
 resulted from this  reporting arrangement.   Board
 members have gained comfort and  assurance  that
 systems are in place and functioning  to manage
 compliance and that deficiencies are identified and
 brought to the attention  of appropriate  managers
 within the  corporation.   Similarly, senior  manage-
 ment with overall  line  responsibility has benefited
 by  knowing that their operations  are  receiving an
 independent review, that people responsible  for
 environmental performance  are aware of their
 responsibilities and accountabilities, and that pro-
 cedures have been established to  ensure con-
 tinued compliance.

 The audit program manager of a large petroleum
 company reported that  significant  benefits had
 been gained from  sharing audit  reports  with plant
 managers from  other plants.  Following each
 audit,  the  final audit report is sent to the pres-
ident  of the operating company.   The operating
   Arthur D. Little, Inc.
                                     22

-------
Groundwater Moni-
toring Data
Informing Management
of Good Practices
company president is encouraged to  share  the
audit report with  representatives of  other  facil-
ities within the company.  In one recent audit  of
a refinery, the audit team noted several discrep-
ancies relating to  the  spill prevention control and
countermeasures (SPCC) plan.  Procedures for con-
trol  and maintenance of valves in dikes were
inadequately implemented,  and several dikes which
were originally  secure had recently been partially
opened to  facilitate access by plant personnel.
Several months following the audit, the audit pro-
gram manager  received feedback that,  as  a result
of distributing the audit report, similar problems
had  been found and corrected at other refineries
within the operating company.

An audit of a solid waste landfill in  Ohio recently
resulted in improved communication with the state
regulatory agency.  During the  five-day site
visit, the two-person audit team thoroughly
reviewed the facility's permits,  correspondence
with regulatory agencies, and internal documents.
Before arriving on-site, the auditors conducted
an in-depth review of applicable federal, state,
and  local  regulatory requirements.  During this
review, they noted that each groundwater  moni-
toring well that the director of the agency deems
necessary  will  be  sampled semi-annually.  Because
no such requirement was  stated in the permits,
the auditors recommended that the facility  contact
the Ohio EPA to determine whether they  should
be reporting groundwater monitoring data, at
what frequency, for what parameters,  etc.   (Fol-
lowing an internal company policy, the facility
was  currently collecting groundwater data.)  Sev-
eral  months after  the final audit report was
issued, OEPA responded by  saying that they
would appreciate receiving groundwater monitoring
data, but that  there was  no formal regulatory
requirement.  The facility is now sending data to
OEPA and  reports that improved communication
has  resulted.

The  audit  program manager  of  a petroleum com-
pany reported  that one benefit of an environ-
mental audit  program is the opportunity to
visually observe the company's facilities compared
with  neighboring facilities.   In a review of the
company's  pipeline operations in  Oklahoma and
Texas, the auditor had an opportunity to  observe
the tanks, pumps, and pipelines of three or four
other companies.  The  auditor found that  in most
   Arthur D. Little, Inc.
                                     23

-------
                           cases his company's facilities had  less oil on the
                           ground, better maintained equipment, and better
                           overall  housekeeping.  The  auditor was able to
                           provide positive feedback to company management
                           regarding the  environmental performance of com-
                           pany operators in the field.
OTHER  TYPES OF BENEFITS

     From  time  to time, environmental  audits  result in beneficial outcomes
that do not easily  fit into the categories  described above.  For example,
while not generally  a major objective or focus of most  environmental audit
programs,  opportunities for cost savings or recycling are periodically un-
covered during  an audit.  Several examples are:
Cost Savings from
Waste Segregation
Reclaiming Waste Oil
During  an  audit of a Maryland plant that polishes
and grinds glass lenses,  the audit team,  following
a standard audit procedure, found that the plant
was disposing all of its glass sludge as hazardous
waste because it contained  residue from leaded
glass.   Further investigation revealed  that less
than 30% of the residue came from leaded glass
waste streams and that the balance did not  clas-
sify as  hazardous waste.   As a result  of  the
audit, the  plant segregated the residue into sepa-
rate waste  streams,  batch tested  and analyzed
each waste stream to verify that  lead existed in
only those  waste streams originating from the
leaded glass  grinding operations, and instituted  a
procedure to dispose of the nonhazardous waste
in a sanitary landfill.  This change saved the
company substantial money  each  year.

During  a 1981 audit of an electric utility  service
center,  the audit team took several tours to phy-
sically inspect  the facility.   On one of these
tours, a team member noticed an  oil-stained area
down  an embankment.  Upon further inquiry  of
an operator,  the auditor  learned  that it was the
facility's practice to  dispose of waste oil from the
trucks down  the embankment—which was  not
located  near  a  stream or  waterway.  As a result
of the audit, this practice  was immediately termi-
nated, the site  was  cleaned up,  and the contam-
inated dirt was  removed.   In addition, a  new pro-
cedure was implemented  to  collect waste oil  and
send it  to a  certified reclaimer.   This  situation
further  benefited the environment in that not only
was the contaminated soil cleaned up, but also a
scarce resource is now reclaimed  rather than  sent
for disposal.
   Arthur D. Little, Inc.
                                     24

-------
Emergency Response
Preparedness
At a utility located in the Western United States,
an audit team recently  discovered  a  potential
weakness in the facility's emergency response
procedures.  Following a formal audit checklist,
one of the auditors reviewed the spill prevention
control  and countermeasures  (SPCC) plan.  Part
of this  review involved asking  facility personnel
to walk through the procedures outlined in the
plan for a mock spill.  This exercise revealed
that some of the spill response materials and
resources were not as readily available  as  the
auditor  thought they should be.  In addition,  it
became  apparent that, should a spill occur after
dark, it would be particularly difficult  to
respond.   As  a result of the audit,  facility per-
sonnel are rethinking how the current system
should be modified to maximize emergency
response preparedness.   Following this  analysis,
which they expect to take less than  one month,
the SPCC and other emergency plans will be
revised as appropriate,  strengthening the  facility
level emergency response system.
/Ill Arthur D. Little, Inc.
           25

-------
                            III.   CONCLUSIONS
      The case examples presented in  this study  clearly illustrate that envi-
 ronmental  auditing can produce a wide variety of benefits.


 THE  BOTTOM LINE:  AUDITING WORKS

      Environmental  auditing can bring about a  wide variety  of outcomes  that
 not only benefit the organization that  has established the audit program,  but
 that  may also benefit the  environment and/or the regulatory agencies respon-
 sible  for overseeing environmental performance.   The  audit  program  man-
 agers who  provided input to this study are convinced that environmental
 auditing works.   Environmental audits provide assurance that an organization
 has appropriate  systems in place and  functioning to manage  its environmental
 affairs.  Audits also identify  compliance  problems and  control system  weak-
 nesses.  In addition, audit programs serve to reinforce management's commit-
 ment  to  achieving and maintaining  compliance with environmental regulations.
 Thus, environmental auditing provides a vehicle  for reviewing environmental
 performance,  identifying  shortcomings, and initiating improvements  or cor-
 rective actions.

      Despite the  lack of  quantitative  data,  most of the organizations that
 participated in this  study are convinced their programs are worth  the
 required effort and resources.  Nearly all the organizations  that participated
 in this study  have  established  and continue their  audit programs on  their
 own initiative.  The  others have headquarters-level directives to establish an
 audit program and are proceeding to  do so.

      Although there is consensus  about  the usefulness of  environmental
 auditing among practitioners,  it is often difficult to isolate  or  clearly dis-
 tinguish the benefits of environmental auditing  from the benefits  of other
 environmental programs.   Many of the outcomes  of an  audit  that benefit  the
 environment are  merely initiated by conducting the audit.  The actual  benefit
 is fully realized  only  after other elements of an organization's environmental
 management system,  such as  action  planning or  capital budgeting, are
 brought  to bear on a particular audit  finding.   Thus,  just as auditing  is
 only  one component of an organization's  overall  environmental management
 system,  it  is  also only one of several factors contributing to a beneficial
 outcome.

      Similarly, it can be  difficult to  identify the  beneficiaries of environ-
 mental auditing.   Certainly, an organization that establishes  an  audit pro-
 gram  (and  its own objectives  for the  program)  is  a principal beneficiary.


A Arthur D. Little, Inc.                   26

-------
The  extent to which  an organization  benefits from  the  audit  program  is
directly  related  to  the  proficiency  of its  auditors  and the congruence
between  its audit objectives and  methods.  However, there are likely to be
other beneficiaries as well.  The public benefits whenever adverse  environ-
mental situations are identified  and corrected.  The public  also benefits  when
the effectiveness  of emission controls  is  improved,  whether by meeting an
existing  compliance  requirement or achieving an incremental gain over  and
above regulatory  requirements.   Regulatory agencies  also benefit  from envi-
ronmental  auditing  when, for  example,  situations with  an environmental
impact are brought  to their attention  or when errors or omissions  in the
information required by  regulations or permits are  corrected.


THE LEVEL OF  BENEFITS VARIES...

     With Sophistication  of the  Auditing Effort

     The nature and intensity of the auditing effort  also impact the benefits
that  result from environmental auditing.   The audit  programs included in
this  study feature a wide variety of audit approaches and  methodologies.  In
general,  the programs can be  thought of as falling  into one of three cate-
gories:

     Assessment Orientation:  Some  of the programs  included in this study
     are  "assessment driven."  That is, the review or fact-finding process is
     based largely on the auditor's experience and judgment.   Here, benefits
     can result  from the added expertise and fresh perspective of the audit
     team that are brought to bear on the facility's environmental status.

     Verification Orientation:   Other audit programs include  a substantial
     amount of  compliance verification.   That is, the  review process includes
     specific audit steps or  procedures designed to determine or verify  first
     hand the extent  that compliance is consistently  being achieved.  Many
     benefits  of these programs result  from in-depth examination  of records
     and equipment.   In addition to  bringing additional expertise and  a  fresh
     perspective to  assess the  facility's environmental status, selected facil-
     ity  records and equipment receive a  rigorous review  to identify  incon-
     sistencies  or departures  from the  standard practices.   Thus,  these
     audits are more  likely  to identify situations  involving  an occasional
     compliance exception.

     Systems  Focus:   Yet other audit  programs included in this study place
     a significant emphasis on  in-depth examination  of a facility's systems
     and procedures for managing the full range of  environmental hazards
     (not just those covered by various  compliance  requirements).   This
     audit not  only  brings  the  added expertise and fresh perspective
     achieved in the first audit  category  and the rigorous examination to
     identify  occasional  departures and exceptions achieved  in the  second
   Arthur D. Little, Inc.                   27

-------
     category, but also a systems perspective that seeks to identify weak-
     nesses and  vulnerabilities in the facility's  approach to environmental
     management.  Such an  audit seeks also to identify weaknesses that may
     not yet have led to an  identified compliance problem or environmental or
     tort  risk, but could lead to  such  a problem  in the future.
                                                                                   X
     There  can be significant  differences  in the  nature and extent of bene-
ficial outcomes from these three types of audit approaches.  Regardless of
the type of approach,  an  audit program can be  valuable to an organization         -j
and  result in benefits  to the environment and the regulators.  However, as         •
more and more of a facility's "more obvious shortcomings" are identified and
corrected (whether as  a result of an audit, other internal review or manage-
ment  oversight activity,  a regulatory  inspection,  or enforcement action),
assessment  driven audits  will  identify fewer  exceptions  and,  therefore,
produce  fewer benefits.   As organizations  find  and fix problems,  assess-
ment-oriented audit programs  will need to shift their emphasis  to confirming
that  compliance is being achieved (and perhaps also to determining whether
appropriate compliance management  systems  are  in  place and  functioning).
More  rigorous and  in-depth review approaches  and techniques will  be
required  to  find  the occasional  or infrequent deficiencies  that  may  be
occurring.

     With Auditor Skills and Organizational  Commitment

     Another  key factor in realizing the benefits  presented  in  this study is
the internal motivation and commitment to  the auditing concept of the organi-
zations  with effective auditing programs.    In  these  programs,  structured,
well-developed techniques  and approaches are augmented not only by  the
ingenuity and resourcefulness  of the auditors but also by the knowledge that
the program has  organizational support.  Environmental auditing is  far too
young and ill-defined  a discipline to expect  that  a structured approach alone
will produce the  desired  results.  While questionnaires and audit protocols
can provide general structure and guidance, an  "internal engine" must move
an environmental  audit program toward the  achievement of its objectives.  To
a very great  extent, the beneficial  outcomes of environmental auditing occur
because of the competence and skills of the audit staff, the  commitment made
to the program,  and the organizational climate in which the program oper-
ates.
A Arthur D. Little, Inc.                   2 8

-------