Federal Government Initiatives in Environmental Auditinq
Leonard Fleckenstein
Office of Policy, Planning and Evaluation
U.S. Environmental Protection Aqency
Washington, DC 20460
(Note: The views expressed in this paper are solely the author's
and not those of the U.S. Environmental Protection Aqency or any
other government entity.)
Annual Meeting
American Institute of Chemical Engineers
August 24-27, 1986
Boston, Massachusetts
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Federal Government Initiatives in Environmental Auditing
Leonard Fleckenstein
Office of Policy, Planning and Evaluation
U.S. Environmental Protection Aqencv
During the past decade many companies have developed environ-
mental auditing programs for sound business reasons, particularly
as a means of helping manage pollution control affirmatively over
time instead of reacting to crises. Environmental auditina programs
have been initiated and expanded in the absence of legislative
or regulatory reguirements to audit. Government agencies, especially
at the Federal government level have taken various initiatives to
encourage environmental auditing, advance the state of the art of
audit practices, apply audit technigues to the governments's own
facilities, and to help set the direction for future audit programs
and practices.
U.S. EPA's Environmental Auditing Policy
After considerable deliberations and several false starts, the
U.S. Environmental Protection Agency publicly addressed environmental
auditing issues in a policy statement published in the Federal Register
as an interim policy on November 8, 1985 (50 FR 46504) and as a final
policy on July 9, 1986 (51 FR 25004). The policy encouraged the use
of environmental auditing to help achieve and maintain compliance
with environmental laws and regulations as well as to help identify
and correct unregulated environmental hazards. The policy statement
specifically:
0 encourages regulated entities to develop, implement and upgrade
environmental auditing programs;
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0 discusses when the Aqency may request audit reports;
0 explains how EPA's inspection and enforcement activities
may respond to requlated entities' efforts to assure compliance
throuqh auditinq;
0 endorses environmental auditinq at federal facilities;
0 encouraqes state and local environmental auditinq initiatives;
and
0 outlines elements of effective audit proqrams
Two aspects of the EPA policy statement stand out above the others*
(1) the issue of potential EPA access to audit reports and (2) EPA's
identification of elements of effective audit nroqrams.
Access to Audit Reports
Because EPA believes Acjency requests for audit reports could
inhibit auditinq in the lonq run, decreasinq both the quantity and
quality of audits conducted, the policy statement notes that "EPA
will not routinely request audit reports." Of course, EPA's authority
to request an audit report could be exercised on a case-by-case basis
-- where the Aqency determines it is needed to accomplish a statutory
mission or where the qovernment deems it material to a criminal
investiqation. Such requests should be limited and made only when
the information needed cannot be obtained from the monitorinq,
reportinq or other data otherwise available to the Aqencv.
This issue of EPA access to audit reports was a motivating factor
in the development of the policy statement and the key issue on which
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most commenters focused during the public comment perion.
EPA issued
the final policy with only minor chanqes from the interim version.
Elements of Auditinq
Believinq that effective environmental audits have certain
discernible elements in common with other kinds of audits, EPA
identified performance-oriented "Elements of Effective Environ-
mental Auditing Programs" as an appendix to the Agency's audit
policy statement.
These elements are fairly qeneral, allowinq
for considerable variability in the way a company miqht structure
an audit proqram.
Response to these elements was quite positive,
with concern focused more on whether EPA would develop more restric-
tive audit elements in the future.
In brief the seven elements
suqqested by EPA are:
1. explicit top manaqement support for environmental auditing
and commitment to follow-up on audit findings.
2. an environmental auditing function independent of audited
activities.
3. adequate team staffinq and auditor traininq.
4. explicit audit program oblectives, scope, resources and
fr equency.
5. a process which collects, analyzes, interprets and documents
information sufficient to achieve audit obiectives.
6. a process which includes specific procedures to promptly pre-
pare candid, clear and appropriate written reports on audit
findinqs, corrective actions, and sche0ules for implementation.
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7. a process which includes quality assurance procedures to
assure the accuracy and thoroughness of environmental audits.
While identification of these elements does not reflect any
great insight or new findings, their publication by EPA does lay
out some generally accepted "criteria" against which companies
can assess their audit programs, and about which interested parties
can react and continue to debate appropriate elements of effective
environmental auditing.
Audit Provisions in Consent Decrees
Within the past two years environmental auditing provisions have
played a central role in a number of major settlements with several
industries.
Due to the very wide distribution and publicity given to
those settlements, and to the benefits of auniting for both industry
ann EPA, environmental auditing is now beinq considered in enforcement
negotiations with a number of companies.
The potential for including audit provisions in settlement
agreements was acknowledged in EPA's environmental auditing policy
statement.
The policy noted that audit provisions are most likely to
be proposed in settlement negotiations where:
" 0 A pattern of violations can be attribute
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Among the issues that arise when considerinq auditina in an enforce-
ment context are:
o What effect should an auditing provision have on the overall
'termS of a settlement (e.a., penalties)?
o What effect should a party's compliance history have on the
overall terms of a settlement, e.q., on Agency access to audit
documents, oversiqht, reportinq of violations, A0ency role in
identifying appropriate corrective action, and whether a
third-party (versus internal) auditor is utilized?
o What limitations are appropriate to be placed on Agency inspec-
tions of audited facilities while the audit is under way or on
the use of audit finrlings in a subsequ8nt enforcement action?
o When is it appropriate to provide for stipulated penalties to be
paid in settlement of violations uncovered by an aUdit?
Th es e fundam ental issues of Aq ency enfo rc emen t po 1 icy have yet to be
resolved, althouqh various approaches have been taken in different
settlement agreements drafted by both regional and headquarters EPA
off ices.
Environmental Auditing Materials
EPA prepared and widely distrihuted a numher of audit-related
materials over the past f&w years.
These materials, available from
EPA's Requlatory Reform Staff, PM-223, Washinaton, D.C. 20460, includp.:
o "Current Practices in Environmental Auditing," profilinq in
detail five companies' operating environmental audit systems;
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o "Annotated BibliographV on Environmental Auditinq", a r-eference
guide to sources of information on audit desian, procedures,
henefits, leqal and other issues.
o "Benefits of Environmental Auditing: Case Examples", identifyinq
specific environmental and other benefits derived from over
twenty companies' actual auditing proqrams.
o "Applicability of Environmental Auditing to Underground Storaqe
Tanks", a review of underground storage tank requlatory i.nitia-
tives and tank assessment and audit techniques.
o "Issues of Confidentiality and Disclosure in Environmental
Auditinq", ctiscussing some leqal issues and principles of
concern to many companies developing or considering audit
proqrams.
o "Duties to Report or Disclose Information on the Environmental
Aspects of Business Activities", delineatinq corporate obliqa-
tions to record and report infomation on the environmental and
health impacts of their activities and EPA obliaations to
disclose or protect such information.
In addition to these materials, Some audit protocols may be
available to the public from one or more of the federal aqencies
identified below.
Other Federal Agencies
EPA is not the only federal agency involved in environmental
auditinq-related activities.
Many federal aqencies have undertaken
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initiatives to establish auditing programs to assess environmental
compliance and management at their own facilities.
Federal agency self-audit initiatives are a response to many
factors, including: encouragement from EPA, increased state and local
enforcement actions, third party litigation, specific legislative
compliance requirements, and increased awareness of potential organi-
zational and personal liabilities.
In addition in May 1986 the U.S.
General Accounting Office (GAO) issued a report (Hazardous Waste:
Federal Civil Agencies Slow To Comply With Regulatory Requirements)
which devotes one of its three major chapters to environmental
auditing and concludes "environmental auditing could help identify
[waste] handlers and improve compliance."
The Tennessee Valley Authority (TVA), which started auditing in
1980, has the oldest audit program in the federal sector.
TVA's
program is described in some detail in the Edison Electric Institute's
"Environmental Auditing Case Studies" published in 1984 and available
from EEl, 1111 Nineteenth ST., NW, Washington, DC 20036.
Other federal agencies establishing audit programs include:
(1) The Air Force, which has: audited air bases and contractor
operated facilities in the United States; expanded some
audits to include waste minimization possibilities; and
developed detailed audit protocols which may be publicly
available.
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(2) The Department of Enerqy (DOE), which last year established
a new Office of Environmental Audit and Compliance under the
Assistant Secretary for Environment and beqan aUditinq DOE's
major facilities.
(3) The Army Materiel Command (AMC), which has completed consul-
tant-conducted audits of all its facilities and is now
initiating in-house audits.
(4) The National Institute of Health (NIH), which developerl
detailed audit protocols and conducted an initial audit of
its extensive Bethesda, MD facilities.
(5) The National Aeronautics and Space Administration (NASA),
which has funded several consultant audits of so~e major NASA
fa c i 1 i ties.
(6) EPA itself, which is completing internal audits of its own
laboratories' compliance with the Resource Conservation and
Recovery Act (RCRA) while also initiatina third party audits
covering all environmental requlations.
Federal Aqency Conference
In 1984 EPA sponsored a conference for federal aqencies to
acquaint them with environmental aUditinq principles and practices.
That conference relied to a larqe extent on relayinCl information
about private sector audit proqrams an~ practices.
EPA is planninq a follow-up conference for federal aqencies in
ea r 1 y 19 8 7 .
This conference will focus more on aaencies' experience
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in developinq and implementinq audit programs and on audit techniques
for planning and conducting audits and reportinq audit findings.
Conclusion
Various environmental auditinq initiatives, especially by EPA,
appear to be effectively expandinq audit proqrams and practices.
While auditing has demonstrated its usefulness to many private companies,
most federal aqencies are only heqinning to audit.
However, their
initial audit efforts are very encouraqinq.
Because environmental aUditinq systems have been widely adopted
on a voluntary basis in the past, and because audit quality depends
to a larqe deqree on qenuine manaqement commitment to the program and
its objectives, EPA is likely to continue to helieve that auditinq
should remain a voluntary activity.
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