ENVIRONMENTAL AUDITING
OPINION LEADERS' WORKSHOP
OLD COLONY INN
ALEXANDRIA, VA
June 9, 1983
SUMMARY OF PROCEEDINGS
Prepared by:
REGULATORY REFORM STAFF
OFFICE OF POLICY AND RESOURCE MANAGEMENT
U.S. Environmental Protection Agency
WASHINGTON, D.C.
October 1983
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ENVIRONMENTAL AUDITING WORKSHOP SUMMARY
PREFACE
On June 9, 1983 EPA sponsored an Environmental Auditing Opinion
Leaders' Workshop in Alexandria, Virginia to bring together key
individuals instrumental in shaping both private-sector auditing
programs and developing public-sector responses to them. The work-
shop was attended by approximately ninety representatives from state
and local governments, industry, environmental groups, academia and
EPA Headquarters and Regional Offices. Judged by participants'
reactions it successfully met its four objectives.
First, the Workshop brought together opinion leaders knowledgeable
about environmental auditing (EA) to share information and experiences
with each other, accelerating EPA's role as an information clearing-
house in this area. Second, new interpersonal networks were created
among participants — networks that could in time result in better
understanding and wider application of EA principles. Third, the
day's activities gave EPA a much clearer picture of participants'
evolving attitudes and perceptions on EA issues, helping shape the
Agency's agenda. Fourth, participants addressed numerous key substan-
tive issues raised by auditing and compliance management, including
how these activities differ from and can complement each other to
assure more effective and efficient attainment of environmental
goals.
The following pages briefly summarize highlights of: (a) prepared
remarks by the morning's seven speakers; (b) a short morning question
and answer session; (c) an afternoon panel discussion; and (d) EA
"issues and answers" reports from each of seven small discussion
groups into which participants divided during the early afternoon.
Such summaries inevitably fail to do justice to the humor, energy
and nuances of the kind of give-and-take which characterized much of
this workshop. Just as inevitably, a full transcript is too bulky
and expensive to provide. We have attempted fairly to capture the
essence of participants' remarks and conclusions, giving due weight
to how views appeared to evolve and modify each other over the course
of the day. We apologize in advance for any errors, omissions or
misplaced emphases. A full transcript or any part thereof, as well
as prepared remarks or outlines for most of the morning speakers,
are available at normal copying charges to those who may wish more
detail or seek to pursue particular issues further.
For additional information contact:
Leonard Fleckenstein
Environmental Auditing Project Manager
U.S. EPA, Regulatory Reform Staff (PM-223)
401 M Street, S.W.
Washington, DC 20460
(i)
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TABLE OF CONTENTS
Preface (i)
A. Presentations
1. Joseph A. Cannon, Associate Administrator for
Policy and Resource Management, U.S. EPA __!_
2. Graham T.T. Molitor, President, Public Policy
Forecasters, Inc 2
3. J, Ladd Greeno, Senior Consultant, Center for
Environmental Assurance, Arthur D. Little, Inc. 3
4. Karen Blumenfeld, Environmental Auditing Project
Manager, Regulatory Reform Staff, U.S. EPA 4
5. Jay Langfelder, Assistant Secretary for Natural
Resources and Community Development, State of
North Carolina 5
6. David Doniger, Senior Staff Attorney, Natural
Resources Defense Council 6
7. Robert W. Cutler, Manager, Regulatory Auditing
Olin Corporation 7
B. Question and Answer Session 8
C. Panel Discussion
Comments by:
1. Michael H. Levin, Chief, Regulatory Reform Staff,
U.S. EPA 10
2. Eugene Bardach, Professor, School of Public Policy,
University of California at Berkeley 11
3. Angus MacBeth, Bergson, Borkland, Margolis and Adler,
Washington, D.C 12
4. S. William Becker, Executive Secretary, State and
Territorial Air Pollution Program Adminstrators and
Association of Local Air Pollution Control Officials
(STAPPA/ALAPCO) 12
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5. Frank Friedman, Vice President, Health and
Environment, Occidental Petroleum Corporation 13
D. Discussion Group Reports 13
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JOSEPH A. CANNON
Associate Administrator
for Policy and Resource Management
U.S. EPA
Washington, D.C.
(Keynote)
EPA views private-sector environmental auditing as a socially
responsible corporate practice with resulting benefits to
industry, public health, the environment and EPA.
A critical question to be addressed at this Workshop is how to
assure ongoing compliance with environmental requirements and
how to develop workable new ways to deal with compliance over
time.
As the air and water acts mature, regulators' focus is shifting
from initial compliance (installation of required control equip-
ment) to compliance over time (assuring the proper operation
and maintenance of equipment).
Even with strengthened government enforcement resources to deal
with statutory responsibilities, those resources are shrinking
in real terms as those responsibilities expand.
For large corporations, compliance assurance is more challenging
due to more diverse and dispersed facilities.
Smaller companies are also challenged since they lack the
information, the means or the management tools necessary to
assure compliance. This class of sources needs special
attention and help in assuring its own compliance, since it
is often difficult for agencies to inspect them with any
frequency.
This Workshop should open more channels of communication between
traditionally "adverse" groups (EPA, industry and environmentalists)
to help shape future directions in assuring ongoing environmental
compliance.
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GRAHAM T.T. MOLITOR
President
Public Policy Forecasters, Inc.
Potomac, MD
Major public policy changes tend to evolve and be diffused in
predictable patterned ways, both between and within countries.
An historic overview of the patterns of development and diffusion
of social innovations such as the steam engine and Social Security
allows general conclusions about the likely future path of
contemporary ideas (e.g., environmental auditing) to be drawn.
Models for tracking the evolution of social policies exist and
can be applied to environmental auditing.
Over the last 150 years ideas for changing or adopting new
social policies have tended to emanate from Western Europe
and slowly make their way to the United States. Usually
there is a significant lag time associated with U.S. adoption
of new policies — though this lag time appears to be diminishing.
Once generalized responses to perceived problems are in place,
then innovative, more effective and efficient methods are devised
to fine-tune the general policy. Environmental auditing is one
such innovative refinement in the area of pollution control.
Evironmental auditing evolved as a response to several discernable
trends — increased tort liability, SEC regulations, public demand
for environmental protection, slowing gains achieved by tradition-
al command and control regulation, and necessary delegation of
program elements to states and the private-sector.
Incentives which encourage private-sector initiatives will
continue to grow and environmental auditing will be part of that
growth.
Patterns of growth can be predicted by such techniques as graphing
the number of articles on a particular topic which appear in
professional journals. Such literature reflects growing interest
and anticipates actual implementation and use. For example, the
number of articles on Emissions Trading elements in law reviews,
engineering and other "trade" journals increased rapidly in the
years before the major policy change, and dropped off after
threshold issues were resolved and implementation gathered steam.
The literature references for auditing have increased geometrically
over the last three years.
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J. LAPP GREENO
Senior Consultant
Center for Environmental Assurance
Arthur D. Little, Inc.
Cambridge, MA
Based on our experience designing, evaluating and sometimes
operating environmental audit programs for individual firms,
we tend to define environmental auditing as a methodological
examination, involving analyses, tests, and confirmations of
procedures and practices, leading to a verification of compli-
ance with legal requirements, internal policies and/or accepted
practices. It helps firms evaluate their environmental perform-
ance.
Auditing is not one set of prescribed procedures. Rather,
programs must be tailored to fit diverse needs of particular
companies.
Audits generally include two categories of activity:
a) assessment - expert judgement on environmental hazards,
risks, control measures, and management system effec-
tiveness, and
b) verification - "tests" conducted to examine the accurate
application of and adherence to environmental policies and
procedures.
Audit programs are established to verify, confirm, and demonstrate
compliance; to provide assurances to corporate management; to
train people in compliance and abatement; and to help anticipate ,
and avoid problems? or for all these reasons.
Several factors enter into a company's decision to set up an audit
program:
a) management's perception of significant environmental hazards
or liabilities;
b) the extent of regulatory activity affecting a company (e.g.,
government enforcement activities); and,
c) the company's basic philosophy about managing, including
managing its environmental affairs.
Conceptually, companies may be said to manage their environmental
affairs through three evolving stages. Stage I is a problem
solving approach where specific problems are found and addressed.
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Stage II is a compliance management approach where companies set
standards or goals and manage against them. Stage III is a risk
management approach where potentially unacceptable impacts of
corporate operations are anticipated and assessment and verifica-
tion are also included. It is in this last stage that mature
auditing programs, with verification systems, are established.
Creating an audit program requires explicit decisions about how to
manage and staff it. The positions can be filled with full time
auditors, or a full time manager using others from the corporate
staff, or by a part time manager and part time staff. These
positions can also be filled by outside consultants.
Private sector auditing seems to be growing rapidly, at least
among larger firms. An Opinion Research Corporation survey of
just over 100 leading companies conducted four years ago produced
a two-thirds affirmative indication that some form of auditing
program was contemplated or in place.
It's important to keep in mind that about one-third of the companies
involved in auditing for four or more years include activities
beyond environmental, such as health and safety, in their auditing
programs.
KAREN BLUMENFELD
Environmental Auditing Project Manager
Regulatory Reform Staff,
U.S. EPA
Washington, D.C.
From the Federal perspective environmental auditing is the result
of converging forces in both the private and public sectors.
Some of these forces are increased regulatory requirements and
tort liability, a need for better management controls at the
corporate level, increasing EPA responsibilities with relatively
fewer EPA resources, a desire to better internalize corporate
environmental responsibility, continued public demand for a clean
and healthy environment, and the need for better compliance over
time (i.e., proper operation and maintenance of pollution control
equipment).
Benefits expected to accrue to industry may be generally categorized
as greater management effectiveness and greater management comfort.
Greater management effectiveness means identifying compliance
status, sharing information among geographically dispersed facili-
ties and developing reporting and response systems to ensure
identified problems are corrected before they become crises.
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Greater management comfort involves making management feel secure
in the knowledge that operations are under control and that
investments are protected.
Benefits expected to accrue to government include a more efficient
allocation of resources for addressing the greatest environmental
risks, better enforcement targeting and decreased levels of pollu-
tion because emission or effluient profiles will decrease.
Environmental benefits will result by helping companies manage
information to identify actual or potential environmental problems,
take immediate responsive action to control those problems, and
make sure responses are effective.
EPA could respond to private-sector environmental auditing in a
variety of ways: do nothing; encourage auditing; create direct
incentives for firms to adopt EA systems; or mandate auditing for
some or all firms in some or all industry categories The current
threepronged policy has been extremely constructive in reducing
anxieties, developing and sharing state-of-the-art EA information,
and accelerating private developments without inhibiting or
stifling them.
The three-pronged approach involves endorsement, analysis and
assistance. Endorsement means that EPA will participate in confer-
ences, workshops and seminars. Analysis refers to the series of
studies which EPA has carried out on aspects of EA. Assistance
refers to EPA working with states and industry to identify and
ameliorate EA problems, issues or concerns.
JAY LANGFELDER
Assistant Secretary for
Natural Resources and Community Development
State of North Carolina
Raleigh, N.C.
From a state agency perspective our State is enthusiastic about
environmental auditing as a program to help achieve the Natural
Resources and Community Development's general goal of environmental
protection.
Environmental auditing is not an alternative to active permitting
and enforcement programs, but it is complementary to those
programs.
It is very important to understand that auditing in North Carolina
is not used to compromise environmental standards. But some
routine flexibility in the implementation of standards helps open
better lines of communication with business.
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North Carolina uses a "manager to manager" approach to encourage
environmental auditing efforts. This approach requires top corpo-
rate and top agency managers to sit down and discuss activities
with each other. On the corporate side, top management informs
employees of the corporation's commitment to achieving environmen-
tal compliance. In the agency, the permit writers get word the
agency wants to work with, not against, businesses with auditing
programs.
North Carolina has already used the manager to manager auditing
approach:
a) to solve a fertilizer operation's nitrogen discharge problem,
and
b) to solve air pollution problems and facilitate permit granting
for other aspects of business operations.
Based on these experiences North Carolina expects at least three
benefits from environmental auditing which will result in greater
environmental protection:
a) more open communications between the State and regulated
firms;
b) greater and more dependable voluntary compliance; and
c) more movement of local industry into the area of Pollution
Prevention Pays (PPP) (i.e., the idea that process changes,
waste exchanges, or other innovative pollution control proce-
dures can turn a profit or produce large savings as well as
reduce end-of-the-pipe pollution.)
DAVID DONIGER
Senior Staff Attorney
Natural Resources Defense Council
Washington, D.C.
From NRDC's environmental perspective environmental auditing is a
very good idea in principle and something that very much needs
to be encouraged and expanded — at least under specified circum-
stances.
We think auditing should be mandated by EPA and such a program
should include some form of self-evaluation and public reporting
of the results without inducements or promises not to penalize
violations.
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Auditing can encourage adherence to standards, continuous
compliance, continuous monitoring and take up some of the
enforcement slack.
As a way to shift the enforcement burden to polluters, auditing
is both fair and not new — precedents are found, for example, in
the Clean Air Act at §110 (a)(2)(k) and §173.
In line with Congressional intent (in the Clean Air and Clean
Water Acts, RCRA and TSCA) regarding full disclosure of emissions
and effluent data, information developed by private-sector
environmental auditing should be made public, though there is a
problem with the "fish bowl" aspect that will have to be worked
out. The "fish bowl" problem arises from corporate concerns over
disclosure of audit findings.
Current uncertainty surrounding potential disclosure of audit
information, which is cited as a factor discouraging auditing,
could be alleviated by a mandatory audit program which requires
information disclosure.
ROBERT W. CUTLER
Manager, Regulatory Auditing
Olin Corporation
Stamford, Conn.
From a corporate perspective environmental auditing, at least at
Olin, is a set of procedures used to manage myriad environmental
requirements.
At Olin auditing began (but soon expanded beyond) an effort to
assure that required regulatory reports were accurate.
Olin submits over 4,300 reports per year to various government
agencies and decided to implement controls over the preparation
of these reports. Olin initiated a three-step approach to carry
this out:
a) identification of report information required by all
government agencies,
b) assignment of specific individuals responsible for
preparing each report, and
c) assignment of other individuals to ensure these reports'
accuracy.
Each of these reports is prepared by a professional outside the
auditing department. The auditing department's role is to assure
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compliance with governmental regulations and to ensure that
systems, procedures and controls are in place to develop
accurate data and ensure compliance.
0 The basic goal of the audit department is to verify the accuracy
of information, not to monitor or make rules. The department
also takes charge in determining whether corrective actions were
taken and that problems will not recur,
0 Olin's auditors review the reports generated to determine whether
they contain the truth (good or bad), and if there is a problem
that appropriate corrective actions are taken immediately so the
problem won't recur. Olin staff also ensures that systems are
established to create the best opportunity of facilities remaining
in compliance.
Question and Answer Session
Moderated by Edwin Clark
Senior Associate
The Conservation Foundation
Washington, D.C.
Mr. Clark moderated a short question and answer session at the
conclusion of the morning presentations. A brief synopsis of princi-
pal audience questions and speakers' answers follows.
Question; How does auditing affect different size businesses, and
can smaller companies take advantage of auditing the way the larger
ones can?
Answer; (Greeno, A. D. Little). Environmental auditing for small
companies is not just a scaled down program, it's a different activity.
Auditing can be just as important to a small firm, but what is
essential is to be sure there is top management commitment to make
auditing work. Small companies have established auditing programs
to increase management effectivenes...
Question; Several questions concerned the Pollution Prevention Pays
(PPP) principle and whether auditing programs could be, or were,
designed to save money by reducing resource input or increasing
process efficiency?
Answer; (Greeno). Saving resources to save money is not the prime
goal of the large majority of companies with auditing programs.
However, where companies do operate under the PPP principle they are
emphatic that money is saved. Generally, saving money by this means
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is an issue for plant managers to decide and is considered outside
the scope of most environmental audits...
Question; Compliance is just one aspect of auditing. A good program
should develop strong systems for basic control as well as identify
cost savings. Perhaps programs should go beyond making regulatory
reports and get into more internal resource management issues?
Answer; (Cutler, Olin Corporation). Basically that is true and is
actually what occurs at the Olin Corporation. We do more at Olin
than focus on reports. However, a lot of effort does go into report
preparation. Many hours of laboratory testing, obtaining appropriate
instruments, calibrating the instruments, monitoring emissions and
effluents, are carried out. An audit is performed to ensure that
everything in a report is correct. The way to make sure a report is
correct is to make sure the methods behind them are correct. These
results are then compared to a set of objectives or standards --
whether they are laws or corporate policy...
Question; Once auditing has been adopted by a regulatory agency,
when and how does the transition occur between approving a company's
audit program and the agency assuring actual compliance?
Answer; (Langfelder, North Carolina). One way to look at a firm's
compliance, once an audit program is in place, is to meet periodically
and work closely with a company to establish a good working relation-
ship. Direct communication with regulators is a part of EA systems
designed to help resolve problems. Neither standards nor permit
requirements are relaxed. But, as trust in a company grows, a state
(based on its own enforcement priorities) may modify its inspection or
enforcement activities...
(Doniger, NRDC). Once a mandatory auditing program is
implemented, the government inspection function to check compliance
should consist of auditing the auditors. If a company proves it has
a good audit program, then it will benefit by having EPA enforcement
resources targeted toward other firms. But, in order to know what
constitutes a good program, criteria must be developed for evaluating
auditing systems...
Question; Confidentiality is a problem. One reason that corporate
insiders are able to obtain full and complete answers to their
inquiries (e.g., admissions of existing problems rather than cover-
ups) is because they are in-house, part of the corporate team. Have
those that advocate a mandatory program with full disclosure require-
ments considered the likely negative impact on this open and frank
exchange of information within the corporation?
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Answer; (Doniger, NRDC). Disclosure is definitely a problem and
there are many countervailing incentives to the disclosure of infor-
mation. Disclosure of information acts as a heavy incentive on a com-
pany to do the right thing. This may be the deciding factor causing
management to act when it otherwise would not. The most important
factor here is "having the company's laundry public, when it's dirty."
Panel Discussion
Moderated by Michael H. Levin
Chief, Regulatory Reform Staff
U.S. EPA
Washington, D.C.
This panel consisted of Eugene Bardach, Professor, Graduate
School of Public Policy; University of California at Berkeley, and
author of several books on regulatory implementation and enforcement
problems; Angus MacBeth, Bergson, Borkland, Margolis and Adler,
Washington, D.C., former Deputy Assistant Attorney General, Lands and
Natural Resources Division, U.S. Department of Justice and one of
the founders of The Natural Resources Defense Council; S. William
Becker, Executive Director, State and Territorial Air Pollution Pro-
gram Administrators (STAPPA) and Association of Local Air Pollution
Control Officials (ALAPCO), Washington, D.C.; and Frank Friedman,
Vice President for Health, Safety, and Environment, Occidental
Petroleum Corporation, Los Angeles, California.
Michael Levint
0 From EPA's perspective, assuring better compliance over time and
getting firms to affirmatively manage their environmental impacts,
instead of reacting to crises, are major concerns.
0 Based on Graham Molitor's presentation one may conclude that
there will be much more activity in the EA area — ideas have
definite phases or patterns, we are only in the birth phase and
developments are taking off.
0 Whatever else we've heard, I think we've heard a ringing
endorsement today of EPA's clearinghouse role in the EA sphere.
° It's important to recognize that the line between private-sector
EA and a "government program" is not as clear as people tend to
assume. Even if an agency only takes the presence of an auditing
program "into account" by reducing inspection because the firm
has a good track record, you've got a "government program". The
agency can do that because consistently good compliance over time
does not happen by accident. Whatever the specifics of the EA
program, the firm must be doing something right. And of course
agencies make that kind of implicit decision to take EA into
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account" now.
It's also important to recognize that EA can force us all to
rethink traditional notions of compliance and enforcement. (1)
You'd like a system that rewards superior performances as well as
punishing bad performance. But there's a danger now that the
more EPA knows about a particular firm's performance, the harder
it is likely to hit, even if performance is "good". (2) A viola-
tion is often not just an exceedance; it partially depends on how
far down into the pile of exceedances a particular Region or
enforcement program wants to reach. One thing you may want to
say is, if a firm has an EA program and has an exceedance, it's
got a problem it has to fix; if you don't have an EA program,
it's got a violation. (3) Whether an EA program is "private" or
"public" it implies precise standards you're auditing against.
But even emission limits are not precise due to unspecified averaging
times or different test methods, and it's not clear an absolutely
precise standard is worth the trouble. That raises the question
of whether we can let firms define what compliance is. If that
sounds like heresy, we should remember it happens all the time
now too, and auditing might make it happen better.
EA is only a small part of a firm's overall management tools.
But if you have EA and a compliance assurance program, you have
information organized in ways which lets you capitalize on other
opportunities like recycle/reuse and air or water trading. EA
ties everything together. If information management and strategic
planning are the name of the game, EA will play a larger role.
Eugene Bardach;
There are three very different types of firms, just as there are
three different types of children.
The first type is very orderly and organized, knows the rules
and does not require an omnipresent body explaining how to act
and to check on performance. This type of firm's behavior can
allow government to get off its back and the firm to get out
from under government's thumb.
The second type is the complete opposite — ill-disposed toward
concepts of order, neatness and social responsibility. For this
type, knowing the rules of the game serves to increase personal
responsibility and accountability. The only way to deal with
this type of firm is to keep after them, tell them what to do and
when to do it, and impose sanctions when warranted.
The third type falls into the middle category — neither slovenly
nor well ordered. These firms present a subtle problem for
regulators who must encourage orderly, organized activities
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without creating animosity or negatively polarizing behavior.
Perhaps a little stick waving as well as holding out carrots is
the correct treatment. This middle-of-the-road firm presents
the real difficulty because there is a fine line between
encouragement and alienation.
Angus MacBeth;
I first became involved in auditing as a prosecutor in an SEC
fraud case, and I'm beginning to see there are a lot of different
ways to accomplish the same end.
0 Under the securities laws there are true outside financial
auditors who certify a company's books based on prescribed
standards. However, in environmental auditing the discussion
presumes internal mechanisms developed by companies to assure
regulatory compliance — the use of external auditors has not
developed.
0 "Corporate culture" is very important in understanding particular
audit systems within firms. This culture has a lot to do with
the type of auditing done or program developed. Much of the
richness and variation we now see in auditing may be lost if the
government gets directly involved.
0 If audit findings must be disclosed, there is a real possibility
that companies will alter their self-analyses in order to deal
with certain findings internally rather than risk having them
dealt with in a public forum.
0 Potential government regulations and incentives would probably
reduce some of the value EA has for firms and could curtail the
implementation of new auditing programs by reducing flexibility.
0 Government should not mandate or create incentives to audit, but
at the same time it will have to take auditing into account as
part of its enforcement program since the presence of an audit
program reflects positively on a firm's compliance record.
S. William Becker:
0 The earlier EPA idea of providing incentives to firms which
establish EA systems initially appeared to be a classic case of
the wolf guarding the hen house. Today's discussions on EPA's
current policy have convinced me that this idea is legitimate
and can produce real benefits.
0 At the very least, government can serve a useful role in adver-
tising and accelerating EA, and large companies' progress in the
area has been substantial and should not be impeded.
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0 However, to the extent EA would require greater resource expendi-
tures by state and local agencies, the tougher it becomes to
widely implement the idea — especially in light of current agencies1
resource limitations and increasing regulatory/statutory burdens.
Frank Friedman;
0 Auditing is really a management systems question. It's a way of
setting corporate environmental goals, defining measures for
reaching those goals, and setting up a system to track progress,
let you know what is really going on, and make sure those goals
are being reached.
0 Top managers now recognize that what they don't know in terms of
their firm's environmental performance can hurt them. This is
the case either because citizens may sue the company for personal
injuries or injunctive relief or because regulators may bring
unanticipated enforcement actions when standards are not met.
0 The information base developed in an audit is important to ensure
that top management knows what is happening at facilities and that
problems are prevented, not merely reacted to. This gives manage-
ment a feeling of comfort — that compliance will follow from a
good management system.
0 Management systems must go beyond determining compliance and begin
systematically anticipating and dealing with problem situations
before they arise. To this end Occidental has developed computer
data bases to assist assuring compliance at its facilities.
0 EPA does not need to work so much with the Fortune 500 companies
because managers in those companies already recognize auditing as
a good management practice. At most, in respect to the large
companies, EPA need only encourage the spread of EA as a good
management system currently available, and keep sharing information
because we can all learn from each other.
DISCUSSION GROUP REPORTS
Small groups of seven to ten people met for nearly two hours in
the early afternoon to discuss EA and record their perceptions of
issues and recommended courses of action. During the final session
these groups reported back to the full workshop and the Plenary
Panel. Many group perceptions overlapped. The following highlights
the major topics presented by the group reporters, without distin-
guishing which recorder or panel member actually made the point.
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Municipalities or other government entities represent a potentially
major route to carry out demonstration projects, develop model EA
procedures, and identify potential costs, benefits and transfer-
ability of EA to the private-sector.
Environmental agencies can learn from the experience gained from
other types of audits (e.g., financial audits, FDA audits, DOE
and NRC audits) as well as from other federal facilities involved
in auditing (e.g., National Institutes of Health and the Air Force),
State governments should basically follow EPA's endorsement,
analysis and assistance approach. But states should also take
advantage of their greater ability to deal directly, one-on-one,
with firms interested in auditing.
Important roles can be played by other organizations outside the
government: universities to research EA issues, trade associations
to provide technical assistance and disseminate EA information,
even professional standards organizations to reinforce environ-
mental auditors' status as an emerging new profession.
When EA systems are first implemented they appear to heighten
disclosure concerns, since more exceedances may initially be
discovered by a firm when the data generated is verified and
centralized. More exceedances may also be found because EA
encompasses and summarizes results of compliance assurance
activities. These factors, it is argued, could make a firm
more vulnerable to government enforcement actions than compli-
ance assurance alone without auditing. But, in time, exceedances
will drop as managers are able to focus in on and resolve
particular problems.
If it ever comes to the point where EPA receives audit reports,
disclosure of audit information should not be accepted as proof
of compliance, but such information should be used as an indicator
when deciding how often to inspect a firm.
When discussing reporting requirements, privacy and trust are
critical. Privacy, distinguished from secrecy, connotes the idea
of corporate problem-solving in something other than a fishbowl.
Trust, as a form of give-and-take between regulators and the
regulated, is important to solve complicated problems. But the
process of give-and-take should remain pretty informal.
It is important to understand what constitutes a "good" or "bad"
actor because this may affect how EA is taken into account by
regulators. "Good" and "bad" are partially dependent on a firm's
compliance record. However, compliance records are dependent on
frequency and quality of agency inspections and what caused
particular reported exceedances. Therefore, compliance is an
extremely fuzzy and difficult-to-measure factor.
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A firm's environmental performance over time is the important
trend when classifying firms as "good" or "bad" actors. It is
the ultimate indicator of the success or failure of a particular
EA program. If other factors remain unchanged, then a decline
in reported exceedances indicates a particular program is
effective.
EA is not an end in itself and should not be viewed as either
a surrogate for compliance or a strong government enforcement
program. But an EA system is a useful tool to attain compliance
when there are follow-up procedures to ensure problems are taken
care of.
EA needs to be "decoupled" from the idea of enforcement. This
means that auditing is a good business practice which government
has good reason to encourage. But it should not be coupled
directly to a regulatory incentives program that would distort
its goals and could reduce its environmental and management
benefits.
One of the benefits of private-sector EA is that it offers the
opportunity to address a whole range of problems with the same
management tool. Environmental, health, safety and other
regulatory affairs may be addressed at once to take advantage of
economies of scale, and to begin dealing with intermedia problems
at the plant level instead of treating each program by itself.
Besides better regulatory compliance, benefits that might accrue
to firms using auditing could include: lower insurance premiums,
discovery of process changes that may reduce production or cleanup
costs and discovery of cost-effective alternative pollution
control strategies.
There are some unique problems in expanding EA to smaller firms
because they tend to be less knowledgeable about environmental
regulations, and possibly more concerned about disclosure of
proprietary information. This concern would be particularly acute
if third party auditors had to be used because such firms lack the
staff or expertise to perform audits themselves.
The inevitability of a government-based audit program is not a
given at this point. If a mandatory program acts as a disincentive,
then fewer voluntary EA programs may be established, and federal
and state resource burdens may increase as compliance decreases.
A mandatory EA program could be the kiss of death for EA as we
currently know it.
Since auditing, at a minimum, has a built-in benefit of creating
information valuable for better environmental performance, EPA and
states should develop incentives to promote experimentation with
auditing programs to create as many corporate auditing systems as
possible.
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0 Two components were identified that could become part of EPA's
clearinghouse role. First, EPA should circulate case studies.
Second, EPA should develop and circulate model auditing procedures,
particularly for smaller firms.
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