ENVIRONMENTAL AUDITING PROGRAMS:
BENEFITS TO THE ENVIRONMENT AND GOVERNMENT*
BY
Edwin H. Clark, II
(Under contract with Sterling Kobe Corporation)
June 9, 1983
This report has been revised by the Regulatory Reform Staff,
Office of Policy and Resource Management, U.S. Environmental
Protection Agency.
This report has been prepared under Contract No. 68-01-6636
for the Regulatory Reform Staff, EPA. The report reflects
the findings and conclusions of the contractor and not
necessarily those of EPA or any other governemnt entity.
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C
Pe
EXECL’TIVE StTh 1ARY . . . . . . • • E-1
S S • • • S • • • • S • — S S • S S S
IDENTIFYING THE BENEFITS . . . . 4
Ber2efits to the Environment 7
Ber.efits to Government . . .
Su.rninar J . 19
PRIVATE PRCGP S AND PU3LI BENEF:TS 19
Pt3L1C POLIC S AND PRIVATE PRCG NS 23
rode of Gover r én - Invo1’ re e t . 24
Cc 1erT entary Targeting . . . . 29
Mi. u Standards 31
In ornatjon Provided 35
SUM1AR AND CONCLUSIONS • • 39
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EXECUTIVE S J 1 ARY
o Enviror.mental auditing has the poter.tial to create
suhstar.tial ber.etits for the er.viror.mer.t and regulatory
ager.c ies.
O These benefits depend chiefly or. the effectiveness of
programs adopted by private firms and the actions ot
government agencies in response to these programs.
o Government agencies must act carefully so as to
stimulate er.virormer.tal auditing without thwarting its
effectiveness.
Ar. effective private auditir. program may be expected to
benefit tne environment by strengthening a firm’s ability
to: identify problems that exist, control identified
proolems, and assure the results of control actions.
0 The existence of effective private auditing programs
may be expected to benefit government by er.abling
more effective compliance oversight and a reallocation
of resources to focus on the most serious environmental
problem areas.
O The effectiveness of private auditir.g programs depends
on: management corninitmer.t; the technical competence of
auditors; the nature (“what”), frequency (“when”) and
location (“where”) of audits; and the number and
types of firms adopting environmental auditing programs.
0 Government agencies interested in stimulating auditing
programs face several important issues: (1) the extent
to which the government will be involved in these
programs, if at all; (2) the extent to which the agency
will target its monitoring, inspection and enforcement
resources in. a manner complementary to the adoption of
environmental auditing programs; (3) whether the agency will
establish minimum standards for environmental auditing
programs; and (4) who should receive the ir.formation
provided by er.viror.men.tal auditing programs.
o Government responses to environmental auditing may
include: no action, encouragement of auditing,
creation of direct incentives and mandatory auditing.
c—i
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BENEFITS OF ENVIRONMENTAL AUDITING PROGRAMS:
TO THE ENVIRONMENT AND GOVERNMENT
INTRCDUCTI ON
This report has two purposes. The first is to analyze the
types of benefits that can be expected to result from adoption of
environmental auditing programs. The seccr.d is to identify how
public agencies can influence the magnitude of these benefits by
their policies and actions.
n environmental auditing program is a program adopted by a
private firm, public agency, or other orcanizat on for the
purpose of overseeing and reviewing the firm’s efforts to iden-
tify and respond to any detrimental ipacts on the environment
*
the firm may be causing. Many firms adopting auditing programs
do so solely for the purpose of assuring that all a plicable
environmental, regulations are being complied with. Auditing
programs can also help the firm identify and control situations
that are not currently subject to regulation but may nevertheless
be creating potential environmental, public health or worker
health and safety risks.
Envi onmenta1 auditing programs can create a numoer 5!
different kinds of benefits. They can improve environmental
quality and ref ce adverse public health effect3. They can save
money and other resources for the firm adopting them. They can
reduce the monitoring, insoection, and enforcement demands placed
* Although the concept of environmental auditing is applicable
to any private or public organization, to simplify exposi-
tion this paper will use the term “firm” to refer to the
organization adopting such a program.
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on government agencies responsible for implementing environmental
or public health programs.
Environmental auditing programs generate these benefits to
the extent that their adoption results in firms’ successfully
controlling environmental problems. As indicated in Figure I,
such success is the end result of a series of actions which
technical1y lie outside the responsibility of the environmental
auditing program, including: 1) identifying problems that exist;
2) undertaking a response to eliminate or sufficiently mitigate
problems that are identified; and 3) ensuring that this response
successfully eliminates the problems that have been identified.
The role of an environmental auditing procram is to oversee
all of these activities and ensure that they are undertaken
properly. Auditing generates benefits to the extent that it
improves the quality of these other activities —— that is, to the
extent that it increases the probability of each of the activi-
ties being successful. The likelihood of an environmental
auditing program accomplishing this goal depends very much upon
how the program is designed and implemented by the firm adopting
it. The quality of the firm’s program, in turn, can substan-
tially be influenced by the government agency responsible for
implementing environmental statutes. The primary question for
such agencies, then, is what type of actions can they take that
will stimulate firms to adopt the types of programs that are most
likely to generate the largest amount of benefits.
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Step
FIGURE I
Problem Identification—Res cnse Secuence
V
Measure of Success
Problems successfully
identified
Appropriate responses
taken cuickly
Potential
Pr ob 1 ems
Exist
Firms monitor in
effort to identify
problems that exist
Stop I
Step II
Step III
V
Firms take adtion to
respond to problems
that are identified
V
Firms action proves
successful in elimi-
nating problems
Responses successful
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Thus, as shcwn in Figure II, there are three links that have
to be hooked together. The first is the actions of the govern-
ment agency. The second is how firms respond to these actions.
And the third is the environmental and other benefits that result
from the firms’ responses.
This report addresses each of these links. It begins by
identifying the types of benefits provided by environmental
auditing programs and how these benefits are generated by such
programs. It then analyzes the characteristics of the programs
that can be expected to generate significant benefits. Finally,
it analyzes how actions taken by government agencies can affect
the types of auditing programs firms adopt, and, therefore, what
public actions will promote the most desirable program c ’.-racter—
istics.
IDE TIFYI G THE EENEFITS
This report is concerned primarily with two types of bene-
fits that can result from the ado tion of environmental auditing
programs. The first, characterized as benefits to the environ-
ment, is a combination of the benefits resulting from improve—
ments in environmental quality and reductions in public health
*
risk. The second, termed benefits to government, is comprised
of the benefits resulting from the increased efficiency or
* The term “government” includes both Federal and state
environmental regulatory agencies.
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FIGURE II
Enviror.rnental Auditinc Scheme Linkaces
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effectiveness that regulatory agencies may experience as a result
*
of firms adopting environmental auditing programs.
There are other benefits of environmental auditing programs
that the report does not address. For instance, private firms
adopting such programs may be able to obtain lower liability and
health insurance rates, may be able to save valuable resources
and thereby reduce production costs, or may be able to achieve
other improvements in prcducti n efficiency which will result in
reduced costs and increased profits. None of these benefits is
addressed in this report. Nor is the possibility that environ-
mental auditing programs will imtrove the efficiency or effective-
ness of government agencies other than those involved in regulat-
ing environmental quality or public health risks. For instance,
environmental auditing schemes could result in more efficient
generation of information that is required by other government
agencies such as the Securities and Exchange Cortunission or the
Occupational Safety and Health Administration.
The report also does not attempt to assess the total net
improvements to society resulting from environmental auditing
programs. Such an assessment would require not only including
benefits the report does not address, but also evaluating whether
some of the identified benefits are compensated for by increased
costs elsewhere. For instance, potential savings to government
regulatory agencies may be offset by increased costs to
* Since the goal of the government agency is usually to
achieve improvements in environmental quality or reductions
in public health risk, the benefits to government can also
be considered to include the benefits to the er.vironment.
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organizations implementing environmental auditing programs. No
attempt has been made to identify the existence or extent of such
offsets, or to estimate the magnitude of the costs (to either
government or the firm) associated with establishing and imple-
menting environmental auditing schemes.
Finally, this report attempts only to identify the types of
benefits that result from auditing programs and does not attempt
to estimate their magnitude. There is yet too little information
available to be able to make even the crudest quantitative
estimates of magnitude.
Fer efits to the Envirorment
As stated above, environmental auditing programs will
provide environmental benefits to the extent that they result in
the elimination of environmental and public health problems that
would otherwise have existed. Achieving these benefits is a
three step process. First, the problem (or potential problem)
must be identified. Second, once the problem is identified, some
action must be taken to control it. And third, the action that
is taken must successfully control the problem. Without all
three of these steps being successful, there will be no benefits
to the environment or to public health. The central question,
then, is to what extent does the environmental auditing program
affect the probability of success at each step?
Problem Identification . Environmental auditing programs can
substantially affect the probability of success in the first of
these steps —— the firm’s efforts to identify problems that
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exist. Some of these problems are associated with the release of
regulated pollutants or with other environmentally damaging
actions currently controlled by regulations. But some potential
problems will be associated with actions that are not yet regu—
lated. It is unlikely that all potential problems would ever be
identified. The question is to what extent an environmental
auditing program increases the probability of identifyir.c a
problem if it does exist?
The responsibility for identifying potential problems
typically lies with the firm’s environmental compliance assurance
*
program. The responsibility of the auditing program is to
oversee and evaluate the compliance assurance program and ensure
that this function is being carried out as well as feasible.
If the environmental auditing program has no effect on the
probability of the compliance assurance efforts to identify a
problem —— for instance, if the compliance assurance program with
environmental auditing scheme is no better than the compliance
assurance program that would exist without the scheme —— then the
auditing program will produce indirect environmental benefits if
it allows the government agency to shift its inspection and
enforcement resources away from the particular firm adopting the
auditing program to another firm which would otherwise be less
closely checked.
* “Compliance assurance program” is defined here as a systema—
tic way to determine, achieve and maintain compliance with
environmental regulations and corporate environmental
policies. It should be noted a firm’s environmental poli—
cies may go beyond existing regulations, to cover the full
range of environmental, public health and safety problems
which its facilities may be causing.
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If an auditing program is to generate direct environmental
benefits in this first step, it must improve the likelihood that
the compliance assurance program will identify a problem if it
exists. The extent to which the firm’s compliance assurance
program is likely to identify potential problems depends upon a
number of factors. One is the number of potential problems that
are monitored for. A program that monitors for the wide range of
air pc’lletants, for instance, even though they have not yet been
regulated, is more likely to identify potential problems than one
that monitors for only the few that are already regulated. A
second factor is the depth and breadth of the compliance assur-
ance program. The number of facilities covered by the program,
as well as the kinds of activities covered (e.g., OSHA—related
health and safety activities, EPA air, water and hazardous waste
programs, etc.) will have a significant impact on the kinds and
numbers of problems identified. A third factor affecting the
likelihood of identifying a problem is the technical competence
of the compliance assurance program staff. There are major
technical judgments involved in identifying and measuring the
seriousness of problems which may exist.
If it is to generate direct environmental benefits in this
first step, then, an environmental auditing program must result
in an improvement in the range of problems being monitored for,
the depth and breadth of the compliance assurance program, and
the quality of technical judgments.
The latter should be underscored as a potentially important
benefit of an environmental auditing program. If the audit team
enhances the firm’s ability to make technical judgments on
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compliance problems, then a potentially significant advantage of
an environmental auditing program is that it can place technical
judgments in the hands of individuals who have the most knowledge
on which to base them —— i.e., employees of the firm. A regula-
tory agency usually finds it very difficult to know enough about
a firm’s operations to know precisely for what, when, and where
monitoring should occur. An employee of, or contractor to, the
firm should be able to make better judgments on such questions
because that person will know more about the firm’s particular
prcduction process, use of raw materials and other related
factors.
Action to Control the Problem . If the compliance assurance
procram identifies a potential problem, the next cuestion is what
is the probability that action will be taken to control it. An
environmental auditing program will generate benefits to the
extent that it increases either the probability that appropriate
action will be taken or increases the speed with which such
action is taken. These benefits can be realized both for pro-
blems that would have been identified in the absence of an
environmental auditing program as well as those that are identi-
fied because of such a program.
In this second step, technical questions, such as those
associated with problem identification, are much less important
than organizational or administrative issues. Is the existence
of the potential problem promptly reported to someone who has the
authority to take action to control it? Is the firm committed to
take diligent action to control the problem? Can action be taken
quickly or does it require substantial review and approval?
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The environmental auditing program may have its strongest
influence, and thus the easiest opportunity for generating
environmental benefits, in improving such organizational and
administrative responses. These influences can occur both
directly and indirectly. The direct influences result from the
reporting and response system established for information provid-
ed by the audit itself. If these reports are circulated narrowly
or submitted only to employees who have insufficient authorit’ .’ to
take adequate action to correct identified problems, the auditing
program will generate few if any benefits in this step. However,
if the establishment and operation of the program results in an
improvement in the flow of information, identified problems are
more likely to be respcnded to, resulting in the program generat-
ing environmental benefits.
The auditing program’s more indirect —— but probably most
imoortant influences —— result f om the demorstat on effect of
tne audit’s rePortIng system an from the audit ng program’s
oversight responsibilities. The actual audit occurs only occa-
sionally —— perhaps once a year. The largest benefits associated
with this second step are likely to occur if the auditing program
stimulates an improvement in the ongoing reporting and the speed
of the firm’s response to any problems that are identified in its
ongoing compliance assurance program. These improvements can
occur because responsible senior officials who want to avoid
being surprised by the audit reports when the audits are under-
taken, improve their own reporting and response system outside of
the auditing program as a defense against such surprises. The
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improvements can also occur if the audits themselves identify
improvements that can be made in the firm’s normal reporting and
response system and the auditing program has the authority to see
that the required organizational and administrative changes are
made to accomplish the suggested improvements.
The first of these indirect influences —— which we call the
demonstration effect —— can also generate net environmental costs
if the auditing program is not implemented properly. If, fcr
instance, the audit reports are just filed away and no acticn
taken on them, this will demonstrate to plant managers that the
whole environmental compliance assurance and response function is
not considered important by the firm’s top executives, and the
plant managers may reduce their efforts to control environmental
problems as a result. It is unlikely that establishing an
environmental auditir.g program would have this perverse effect,
but it is possible.
Successful Elimination of the Problem . The third step in
generating environmental benefits is the requirement that the
action taken in step 2 be successful in eliminating the problem
identified in step 1. An environmental auditing program will
generate environmental benefits to the extent that it increases
the probability that any responses the firm makes to control
identified problems will be successful. This step again involves
technical questions. Does the pollution control device work?
Does the clean up effort actually reduce risk? Did the produc-
tion cut—back achieve its goal? But there is also at least one
administrative question: is anyone checking to make sure the
controls are working?
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The existence of an environmental auditing program would not
be expected to have much effect on the technical adequacy of
efforts made to correct the problem unless adoption of the
program is accompanied by an increase in the technical expertise
of the firm’s environmental staff. However, even without improv-
ing the firm’s technical capabilities, an auditing program can
deal with the administrative issue. Through oversight respcnsi-
bilities it can stimulate managers to collect informaticn about
whether the action was successful or not. If so, it could lead
to faster response in cases where the initial response was not
effective.
Thus environmental auditing has the potential for generating
environmental benefits by increasing the probability of success
at each of the three steps which must be taken to correct
environmental problems. There is no information available which
would indicate what the probability of success is in each of
these steps without an environmental auditing program, mucri less
how much change such a prcgram would produce in these probabili-
ties. However, it is highly likely that the prcbabilities are
lowest in the first of these steps —— identifying potential
problems. If so, this is the step at which there is the greatest
potential for improvement and, therefore, environmental benefits.
However, as indicated above, it appears that environmental
auditing can most easily generate benefits in the second step.
We will return to these conclusions later.
Other Benefits . The analysis to this point has deferred
discussing several important factors which can significantly
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affect the magnitude of the benefits provided by the environ—
mental auditing program. First, it has ignored the fact that
some potential environmental problems are more serious than
others. Any program which resulted in resources being focused on
less serious problems could result in a reduction in environmen—
tal benefits (even though this focusing increased the probability
that these less serious problems would be identified and that
action would be taken to correct them). Conversely, auditing
programs that focus greater resources on potentially more serious
problems could generate more environmental benefits even though
they had a smaller impact on improving the probability of success
in any or all of the three steps. To generate the most benefits,
the auditing program should be designed and implemented to focus
more of the firm’s resources on the more serious problems.
The fact that there is a difference in the potential serious-
ness of environmental problems that a firm may create provides a
major potential advantage for environmental auditing over other
approaches which place more responsibility for identifying
problems on traditional government inspections. It is often not
possible for government agencies to predict what the more serious
problems may be for any specific facility. However, individuals
intimately familiar with the particular materials and processes
used in that facility —— knowledge that the government agency
could almost never obtain —— should have a much better chance of
identifying these problems if they are also knowledgeable about
health and environ nental effects. Under environmental auditing
programs, the people who have the most pertinent knowledge, are
the ones responsible for performing the task.
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auditing programs, the people who have the most pertinent know-
ledge, are the ones responsible for performing the task.
Second, the analysis has so far been conducted only with
respect to how environmental auditing would generate benefits as
implemented in a single firm. The total benefits will depend not
only on how it is implemented within each firm, but also how many
firms adopt it. Clearly, the more firms adopting programs which
generate the types of environmental benefits described above, the
greater the total resulting environmental benefits will be.
The number of firms adopting adequate auditing programs is
important not only in terms of such direct benefits, but in terms
of indirect benefits as well. The more firms that adopt adequate
auditing programs, the more regulatory agencies will be able to
focus their resources on other, unaudited problem areas. As
indicated below, these indirect benefits are a major potential
source of environmental benefits that auditing programs can
generate.
Finally, the analysis has not recognized the existence of
“cross rnedia” problems. Actions taken to avoid potential pro-
blems in air pollution, for instance, may only result in those
problems being transferred to another media — for instance water
or land. Again, an auditing program may be better able to
identify and take account of these cross media effects than
programs depending more on government inspectors. The govern-
ment’s statutes, regulations, inspections, and enforcement
programs —— indeed the whole organization of the government
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programs —— are likely to be media specific, and therefore, tend
often to overlook cross media effects. An auditing program,
staffed by individuals accustomed to looking at the production
process as a unit without separating it into the different types
of problems that it may create, may be in a better position to
predict and respond to such cross media effects. Thus, one of
the benefits of an e wironmental auditing program may be that it
is more likely to avoid such problems.
In summary, it is clear that environmental auditing programs
can create significant benefits for the environment. ecause
they place more responsibility at a decision level where the most
knowledge exists, good auditing programs should increase the
probability that potential problems are identified if they exist,
and should increase the probability that action will be taken to
correct problems once identified. They may also increase the
probability that the actions taken will be adecuate to control
identified problems.
Effective environmental auditing programs can also focus
resources on the most potentially serious problems and may avoid
the generation of cross—media problems. In all these ways a well
designed environmental auditing program can benefit the environ—
ment and public health.
Benefits To Government
Government agencies responsible for controlling risks to the
environment or public health can also benefit from the adcpticn
of environmental auditing programs. All 3uch agencies operate
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under budget constraints —— sometimes severely so —— which means
that they do not have the resources to carry out all the desir-
able oversight and enforcement activities. The adoption of
environmental auditing programs by firms can create substantial
benefits for government agencies by increasing the total amount
of effective compliance oversight which occurs with a given
amount of resources.
These benefits can be realized in either of twc ways. First
adoption of environmental auditing prcgrams by potential pollu-
ters can directly substitute for government funds thereby reduc-
ing the agency’s budget. In this case the primary benefit would
be to the taxpayer. However, the agency would still be cperating
more efficiently than it was before because, with fewer resour-
ces, there wcuid be the same amount of oversight and enforcement
taking place.
Alternatively, regulatory agencies could reallccate their
limited resources, shifting them away from firms which adcpt
e vironrnental auditing programs to cther firms which have poten-
tial health and environmental problems. In this case, agencies’
enforcement budgets would not be reduced; instead, agencies would
be achieving increased envircnmental and health protection with
the same level of resources. This again would improve the
acencies’ efficiency, as well as improve the effectiveness with
which they control environmental and public health problems.
In most cases some combination of these two types of benefits
would be realized.
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In summary, environmental auditing programs can both
directly and indirectly increase the efficiency with which a
government agency identifies and corrects environmental problems.
They can also result in savings to taxpayers. Of course the
other benefits provided by environmental auditing’ programs -—
benefits to the environment and benefits to private firms are
also benefits to society and, therefore, relevant to government
as well.
S ur a r’. ’
The above discussion has briefly outlined the ways in which
benefits to the environment and benefits to the government can
result from the adoption of environmental auditing programs by
private firms and other polluters. It would appear that these
benefits are potentially cuite large. The two types of benefits
are also strcngiy interrelated. Taking the benefits to govern-
ment solely in terms of reduced budgets will limit the benefits
to the environment. If the benefits to government are taken
primarily in terms of the agency making more effective use of
oversight and enforcement resources, the benefits to the environ-
ment can be very significant. Thus the magnitude of the benefits
to the environment are very much dependent upon the magnitude of
the benefits to the government and the form which these benefits
take. These interactions are important in determining appro-
priate policies for achieving such potential benefits as de-
scribed in the last section of this paper.
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The discussion has also indicated that the magnitude (or
even existence) of the benefits is very much dependent upon what
types of programs the firms adopt, and who is responsible for
implementing them. This is the subject of the following section
of the analysis.
PP IVATE PRCGP i• S A D P ’3LC SE EFITS
The previcus section repeatedly emphasized the potential for
environmental auditing programs to generate significant benefits
—— if they are implemented pro erlv by the firm. Good prccrams
imolemented in a prc er way can provide very large benefits.
Poor programs may prcvide very small benefits, or, in extreme
cases, may even result in a net reduction in environmental and
health protection. Thus, the question of how the firm implements
the program takes on major importance.
There are four major characteristics of an environmental
auditing program which determine the extent to which auditing is
likely to generate benefits to the environment. The first of
these is how seriously the firm implements the program. The
second is the technical quality of the program. The third is
what is audited, when and where. And the fourth is how many and
what types of firms adopt environmental auditing programs. Each
of these characteristics is discussed below.
Commitment . A prerequisite for having a good environmental
auditing program is a firms commitment to make it a good pro-
gram. A strong commitment is demonstrated in several ways. One
is by having a senior officer of the firm responsible for the
program.
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It should be a person who has the authority to take quick action
to solve any problems that are identified, and who can properly
interpret the information provided. Another demonstration is
given by who receives the information the prograirt produces and
the usefulness of this informaticn. If technical reports are
only made orally or, if written, are cnly circulated narrowly,
the program is likely to have limited impact on the firm’s
decision making process. However, if interpretations of the data
are submitted quickly to high ranking officers the impact is
likely to be much greater. A third demonstration of the firm’s
commitment is the incentives and backing it provides to the
auditors and to other personnel who respond rapidly and effective-
ly to audit reports.
The firm’s commitment in turn, depends upon how it perceives
the benefits and costs associated with a good environmental
auditing program. If the firm’s senior officers perceive the
program as producing net benefits, then the program will probably
be taken seriously. However, if the program is perceived primar-
ily as producing problems —— for instance, more rapid enforcement
actions or an increased chance that successful liability suits
will be filed —— the firm is unlikely to adopt the program in the
first place, or, if it does, irnolement it in such a way that it
is largely ineffective. Ultimately, perhaps, the firm’s commit-
ment to the environmental auditing program will depend upon how
serious it is about complying with environmental regulations and
avoiding potential health and environmental problems.
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Technical Quality . The second characteristic of an effec-
tive prc ram (at least with respect to the first and third steps
described in the previous section of this paper) is its technical
quality. Effectively identifying and responding to potential
environmental and public health problems requires a high degree
of technical skill. Properly auditing the firm’s normal problem
identification and response programs requires at least as much
techn .cal skill as is required for these programs themselves.
For instance, auditors must be familiar with prcper monitoring
and analysis procedures.
A firm that assigns relatively untrained employees to the
auditing program when they are not busy with their primary
responsibilities, is unlikely to have an effective program. If,
en the other hand, a firm creates a staff of highly qualified
people dedicated solely to the auditing program, and devotes
adecuate resources to providing the necessary analytical capabil-
ity, it is likely to have a more effective program. If adequate
expertise cannot be collected in the environmental auditing
staff, they should at least have ready access to people who do
have the required knowledge, and mechanisms should exist for
ensuring that the information they require gets to them expedi-
tiously.
What, When and Where . A good environmental auditing program
requires substantial insight into the basic technical functioning
of the plant’s processes by the staff conducting the program.
The auditors also need to have a good knowledge of how health and
environmental effects are created, and of industrial chemistry,
biology, chemical engineering and industrial processes.
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Questions of what, where, and when obviously involve substantial
judgment on the part of this staff. If they have the competence
to make technical and analytical judgments properly, then, as
indicated in the previous section, the auditing program will have
substantially greater potential to generate environmental bene-
fits than other approaches which depend more on government
inspectors.
But knowing what to do is one thing, and having the motiva-
tion to do it correctly is another. Thus, the staff must also
have the proper incentives. They must perceive a good program as
generating net benefits for them personally. Other’ ise, the
informaticn that would allow them to implement a successful
program can be used just as easily to ensure that the firms are
auditing for the wrong problem at the wrong place at the wrcng
time.
Nu ber and Tv es of do tinc Firms . The final factor
determining the magnitude of benefits generated by environmental
auditing programs is how many firms and what types of firms adopt
them. Cbviously, if very few firms adopt auditing programs, the
total benefits will be limited. Similarly, the benefits will be
limited if the only firms adopting auditing programs are those
unlikely to produce serious environmental impacts or risks to
public health. The greatest benefits will be achieved if high
quality programs are adopted by firms most likely to create
potential problems, either because of their size or the type of
operations in which they are involved.
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Thus, in order to create the largest amount of benefits to
the environment as well as to government, regulatory agencies
should consider stimulating widespread adc tion of environmental
auditing programs by those firms most likely to create potential
risks to the environment or public health and ensure that firms
that do adopt the programs 1) have a strong conunitment to carry-
ing them out properly, 2) provide their staff with the proper
incentives to answer the questions of what, when and where in a
manner most likely to identify pctential problems, and 3) have a
high quality of technical expertise involved in the program.
The dilenuna facing regulatory agencies is how to achieve
these goals most effectively. In many cases there may be an
apparent trade off among different goals. For instance, the
higher the quality demanded of individual procrams, the fewer
firms are likely to adopt them. Are we better off having very
high quality programs adcpted by a smaller number of firms or
having a generally lcwer quality program adopted by a larger
number of firms? Is there a way to avoid this dile na? Can
public agencies provide incentives that will stimulate all firms
to adc t the highest quality program that is consistent with
their resources and needs?
PUBLIC POLICIES AND PRIVATE PROGRAMS
The first link in the chain generating benefits to the
environment and government consists of the actions taken by the
regulatory agency. This section explores potential respcnses
that government agencies might make to private sector environmen—
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tal auditing programs. The goal of any response should be to
stimulate the adoption of good environmental auditing programs by
as many firms creating potential risks as possible. It may not
be possible to stimulate all firms to adopt programs having all
the desirable characteristics. But the more closely this goal is
achieved, the greater the benefits will be to the environment and
to the agency itself.
In addition, the agency can take some actions that may
directly generate benefits. Fcr instance, a decision to focus
the agency’s own monitoring, inspection and enforcement resources
on high risk firms that have not ado ted high uality environmen-
tal auditinc crcg ams shculd result in ncreased benefits to he
environment.
There are four basic pclicv issues that the regulatory
agency faces with respect to environmental auditing programs.
The first is the extent to which the government will be-involved
in these programs, if at all. The second is the extent to which
the agency will target its monitoring, inspection, and enforce-
ment resources in a manner complementary to the adoption of
environmental auditing programs. The third is whether the agency
will establish minimum standards for environmental auditing
programs. And the fourth, is who should receive the information
provided by environmental auditing programs.
Mode of Government Involvement
The most basic issue relates to the mode of government
involvement in the environmental auditing programs. This can run
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anywhere from no involvement, to requiring all firms to adcpt an
auditing program meeting minimum standards. A policy of no
involvement would mean that the government would not be involved
in any way with the adoption of environmental auditing programs
by private firms and would not modify its behavior in response to
these programs. This is essentially the situation that existed
before the government became interested in environmental audit-
ing. Some firms had adopted environmental auditing programs, but
the existence of these programs was often unknown to the regula-
tory agency, and that agency, even if it knew about the programs,
did not formally modify its behavior in response to them.
A second mode of gcvernment involvement would be fcr the
agency to encourage private firms to adopt environmental auditing
programs withcut formally offering any incentives for them to do
so. Government encouragement could take the fcrm of 1) favorable
publicity (conferences, publications, references and speeches);
2) technical assistance (acvising firms on how they can establish
programs, providing advice and techniques for dealing with
specific environmental problems, etc.); or 3) research and
analysis on environmental auditing programs, how they operate
most effectively, and what benefits they can achieve for firms.
Such government support may well stimulate those firms which are
likely to adopt environmental auditing programs to do so and to
improve the cua1ity of the programs adopted. However, a firm’s
decision to adopt an environmental auditing program under this
mode of government involvement would depend solely on how it
perceived the benefits of such a program to it.
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A somewhat more aggressive mode of government involvement
would be for the agency to provide some direct incentives for
firms to adopt environmental auditing programs. Such incentives
might include policies 1) reducing inspection and enforcement
activities directed at firms adopting such programs; 2) using the
agex cy’s enforcement discretion to suspend action against self-
reported instances of non—compliance for firms adopting environ-
ment,al auditing programs (if the firm is demonstrating good faith
efforts to correct the problems); 3) giving such firms first
prio ity in applications for discharge permits and other licenses
and permits that the agency must issue; 4) reducing other repcrt—
ing burdens for the firm; and 5) reducing the amount involved in
financial settlements associated with consent decrees or ubse—
cuent civil or criminal actions. Individual reculatory agencies
may be able to think of other incentives they could offer to
st ulate firms to adopt such programs. Under this - mode cf
involvement the firm’s decision to adopt an er.vircnmentai audit-
ing program would still be voluntary, but the benefits to it of
such adcption would be increased. Thus, more firms would be
expected to adopt auditing prcgrarns than if there were more
limited government involvement.
The fourth mode of government involvement would be for the
regulatory agency to require some or all firms to adcpt environ
mental auditing programs. A decision about which firms would be
required to adopt such programs might be based upon their produc-
tion activity, size, or location.
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The agency may also have the option of adopting several
modes of involvement simultaneously. For instance, it could
require auditing prcgr is by scme firms while providing incen-
tives or technical assistance for other firms. Thus, there are a
wide range of alternative modes of involvement. The question is
which of these modes is most likely to result in the greatest
benefits to the environment and to the government agency.
In informal interviews with firms conducted in association
with this report, a very strong preference was indicated for very
limited government involvement. These interviews only included
larger firms that had already adopted environmental auditing
programs. They were very ccr.cerned about the possibility of
regulatcry agencies becoming more involved in these programs
because they felt 1) the programs were, for the most part,
operating very well already, and 2) government involvement could
do little to improve them. The second mode of involvement --
providing techn cai information about such programs —— was
usually considered acceptable and possibly even useful, but the
only possibly useful incentives that some firms identified were a
reduction or elimination of government inspections.
However, this response does not take into account what
should be done about the firms that have not adopted environ-
mental auditing programs. If these programs have the potential
to generate large environmental benefits (as argued above), then
there is presumably a public interest in having them adopted as
widely as possible. The question for regulatory agencies thus
becomes whether and how can they stimulate more extensive adop—
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tion of auditing programs without diminishing the benefits being
generated by those prcgrarns that are already in place.
Com lementarv Tarcetina
Regulatory agencies are unlikely ever to have sufficient
enforcement resources to ensure that all regulated firms are in
compliance all the time. These agencies, therefore, have to
aTtlocata or “target” their monitoring, inspection, and enforce-
ment resources in some manner. The policy question is whether
this tar eting scheme should be modified to take into account the
existence of environmental auditing programs. There are several
diffarent ways in which these modifications may take place, and
the type cf mcdificaticn Will partially determine the magnitude
of the benefits resulting frcm the adoption of environmental
auditing prcgrams.
If the environmental auditing programs adopted by private
firms are at least as good as the monitoring and enforcement
efforts that the regulatory agency is able to implement, the
greatest increase in environmental benefits would result from the
agency shifting its inspection and enforcement resources away
from firms that have adopted auditing programs. With this
approach, there should, at the least, be no reduction in environ-
mental benefits from the firms adopting the programs and an
increase in benefits from non—auditing firms that would have more
of the government’s resources tocused on them.
However, alternative forms of complementary targeting are
possible. One alternative would have the regulatory agency
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analyze the results of environmental auditing prcgrams (assuming
that they were to receive selected data generated by these
programs) to determine whether there is an identifiable group of
firms —— for instance, firms in a particular industry, of a
particular size, using a particular process, or of a particular
age —— that seem to have a higher rate of non—compliance than
others. The reculatory agency could then focus its enforcement
resources cn those particular types of firms that have he
highest probability of non—compliance or are most likely to
create sericus health or environmental risks. In this form cf
targeting, the high risk firms might all be treated ecually
regardless of whether or not they have err:ircnmental auditing
programs. Or en:Torcement resources might be fccused on those
firms in the high risk category that have not adopted environ-
mental auditing programs.
One form of targeting that would appear to prcduce very
limited environmental benefits (and perhaps even net environ-
mental costs) would be to focus the agency’s inspection and
enforcement resources on those firms that have adcpted environ-
mental auditing programs. An agency might adopt such a targeting
scheme to ensure that those firms are not cheating in their
programs, because those firms are producing more data that can be
used to determine whether they are in compliance, or under the
assumption that the firms would not adopt an environmental
auditing program unless they have problems. Although one can
hypothesize cases in which such targeting could generate bene-
fits, this is unlikely to occur under normal circumstances.
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Cornolementary targeting is probably the easiest of the fcur
policy decisions to implement. The acenc’ has almost complete
discretion on ho it uses its ins ecticn and enforcement re-
sources as long as the scheme is cbjective. Moreover, ccmple—
mentary targeting is also the means by which the agency can most
directly generate benefits.
There is, of course, some risk in com lementary targeting.
If the agency employed an efficient tarceting scheme before t e
adortion of the programs, and if the orograms do not achieve at
least the same probability of success at all three steps of the
problem identification-response process as existed prior to their
adODt cn, then tarcet ng inspecticn and enforcement resources
away from the adopting firms could result in increased costs to
the environment. Such a situation may be unlikely, but it
indicates that net benefits resulting from com lementary target—
inc will, of course, decend uton the oualitv of the environmental
auditing programs firms adopt as well as on the type of targeting
the agency adopts.
The firms contacted in association with this study strongly
preferred the targeting scheme that shifted inspection and
enforcement resources away from those firms adopting environmen-
tal auditing schemes. This is not surprising because all of the
firms interviewed have already adopted auditing schemes. The
respondents also suggested that any targeting scheme that shifted
more attention to firms adopting auditing programs would be
counter productive. At best, such targeting would generate rio
environmental benefits. At worst, it could generate significant
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environmental costs by discouraging firms from adopting auditing
programs at all. Even if firms did not abolish their prcgrams
altogether with such a targetin scheme they would prcbably limit
them to only the specific requirements of their discharge per-
mits, eliminating one of the major oDportunities for such audit-
ing programs to generate significant environmental benefits.
However, the firms and the regulatory agencies face a
dilemma with respect to complementary targeting. In order for
the regulatcry agency to be certain that the preferred form of
complementary targeting will produce net environmental benefits,
it must be assured that the adc ted auditing prcgrams are at
least as likely to identify and successfully res ond to environ-
mental prc lems as would be tne case n the absence c: tr.e
rcgrams. This could imply that the government agency would need
to know something about the quality of the programs. But the
firms prefer that the agency not get involved at all. The
cuesticn is whether there is some way of responding to th s
dilemma which will satisfy both the needs of the government and
the desires of the firms, and which will not result in a
reduction in the number of programs adopted or their quality.
Minimum Standards
The third policy variable involves the question of whether
the federal government would attempt to impose any minimum
standards for acceptable environmental auditing programs. There
are three basic types of standards that the agency could impose.
One relates to the technical aspects of the program. The second
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relates to the qualifications of the individuals who are
responsible for the program. The third relates to the procedures
and processes followed in carrying out the prcgram.
Minimum technical standards would rel :e primarily to the
methods used in the firm’s compliance assurance program, not to
the auditing program per se. They might also relate to the
questions of when, where and what auditing will be done. Regula-
tory agencies frequently issue rules or guidelines definir.g the
technical aspects of monitoring and analytical programs. They
may also, though often with less effectiveness, issue rules or
guidelines specifying how, what, where and when monitoring and
oversight should occur.
The second type of minimum standard relates to the question
of who does both the compliance assurance and the auditing. This
type of standard could take the form of minimum qualifications
for the responsible individuals. For instance, most states
require any construction drawings to be approved by a licensed
engineer, or architect. Such a professional, in order to be
licensed, has to satisfy minimal education requirements as well
as pass a qualifying examination. A regulatory agency or outside
organization could license environmental auditors in a similar
manner. In the previous section it was indicated that, in order
to generate the greatest amount of benefits, the environmental
auditing staff would have to have a substantial diversity of
technical background and access to large amounts of infcrmaticn.
It was also suggested that many firms may not be able to afford
to allocate so much expertise to such a program. However, any
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gaps could be filled by consultants and other personnel assicned
to the program on a part time basis. Thus, the qualifications
would not necessarily apply exclusively to the individuals in the
program, but would include the expertise available to the program
as well.
not employed by the firm conduct, or alternatively, certify the
results of the auditing program. This is the concept of the
“third party” auditor, and could be adopted either in association
with or ir.de endentiv of the minimum qualifications requirement.
The apcroac of a thi d par y auditc is used ‘ ‘arC’3 1
auditing to protect the interests of those who depend upon the
aud t to know the true fir.ancial condition of a firm. if the
third oart’ ’ is not recuired to actually carry cut the monitoring
program, it could be recuired to at least certify that the
auditing was conducted properly and that the resulting data have
been interpreted and presented accurately. The third party
auditor could also be required to interpret the informaticn, for
instance, to s ecifv whether the firm is or is not in compliance
with the conditions of its permit.
A third type of minimum standard relates to the procedures
and processes followed in carrying out the auditing program.
These might be requirements regarding to whom the auditors
report, who has to see and sign off on the audit report, whether
the report has to be formally responded to, and other such
process issues. Such process requirements are often adopted in
regulations to ensure that responsible officials are informed of
and accept responsibility for specified activities or assertions
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that the firm is making. They are most often adoptF’d when it is
not feasible to specify minimum technical standar.s, when the
issue is a matter of judgment rather than fact, as an effort to
reinforce other standards, to ensure that any problems are dealt
with quickly, or just to ensure that the issue is not shunted
into meaningless information collection and reporting processes
outside the firm’s decision making hierarchy.
In general, tha concept of setting minimum standards would
only apply in the more active modes of government involvement --
that is, when the regulatory agency requires that auditing
programs be adopted or provides incentives for the adoption of
such programs. The problem of establishing minimum standards is
that they often discourage firms from doing better than the
minimum. The minimum may become the maximum standard. Such
standards must be implemented very sensitively to ensure that all
firms are at least as good as the minimum but do not discourage
firms from attempting to do beter than the minimum.
The firms interviewed in associaticn with this study
indicated some acceptance of the idea of the regulatory agency
imposing minimum standards. They indicated that they almost
always adopt technical standards issued by such agencies. They
also indicated a recuirement that a senior executive of the firm
be required to sign off on audit reports would probably be
acceptable. However, they were more resistant to personnel
standards and more detailed process standards. Most of the
personnel involved in both the monitoring and auditing programs
have not had any special training, rather being trained “on the
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jcb”. The respondents indicated that this type of training was,
in their jud ment, certainly adequate and perhaps preferable to
formal training.
The respondents also indicated that detailed process
requirements would be quite inappropriate because there is no one
orgar.ization that will work best for every firm because the firms
themselves are organized differently. Hcwever, at least one of
the respondents did indicate that his firm’s current program was
quite informal and might benefit from being more formally organ-
ized.
The rnessace from these respcnses could be that the govern—
merit should impcse no requirements on hcw the programs are
organized, but could im ose requirements that: 1 there be some
formal organization, and 2) that an executive of the firm be part
of this organization and be required to sign off on the audit
repcrts. These standards might provide the compromise solution
to the question raised at the conclusion of the section on
complementary targeting.
Information Provided
The last policy variable a government agency can affect is
the question of whetter, what and when information collected in
the environmental auditing process will be reported to the
regulatory agency or be made available to the public.
The first question is whether the firm should release any of
the information collected. If so, what information? The general
choices here are (1) all data collected will be reported, (2) no
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data collected will be reported, (3) summaries or interpretations
of data collected will be provided, (4) only informaticn on
processes and activities will be reported, or (5) only instances
of noncompliance and correction schedules will be reported.
It may be more efficient to reduce the reporting burden and
to improve the aovernment’s ability to use data, by requiring
only summary reports. Perhaps it would be even more efficient to
recuire that interpretations of the data rather than the data
themselves or even summaries of the data be provided. When
dealing with such “factual” questions as whether or not a firm is
in compliance with its permit, such interpretative information
can be as terse and simple as a “yes” or “no”. However, the
greater the amount of interpretation that takes place in pre a:-
ing the re crt and the terser the repcrt, the more difficult it
will be for the government agency to verify its accurac ’.
The seccnd Dcl cy cuestion cn information reporting is when
should the information be reported. The normal requirement is
that it be reported periodically —— frcm once a week to cnce a
year. The acency here is faced with a trade—off between infre-
quent reporting resulting in any problems not being identified
early, and not having the resources to be able to interpret and
benefit from reports that are made too frequently. Thus the
agency will often compromise by reducing the frequency of reports
to a level where the information can be adequately assimilated,
realizing that there may be a delay in identifying non-compliance
problems.
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An alternative is the “fire alarm” —— only requiring reports
when a problem has been identified or some other criterion has
been met. For instance, the requirement could be that there
would only be reports to the regulatory agency when a situation
of non—compliance has been discovered. However, this recuires
the agency to somehow be assured that the absence of reports does
not reflect a failure to collect the information or a failure to
report cases of non—compliance that have been discovered. It
could be very difficult for the agency to cbtain the assurance
without reviewing all of the data itself.
There are othe po 4 cies a eculato y ace ’cv can ad o wi
respect to informaticn retorting. it could, for instance, only
require that records of the information be reta ned by the firm,
available for inspection by the acency, and not that the
information be re crted to anyone. Or, it could recuire that
only certain firms provide information, for instance, those firms
that are most likely to create environmental or public health
problems or those firms best able to afford a reporting burden,
or selected firms that are for some reason considered representa-
tive.
The adoption of any of these policies is likely to have a
significant impact on the type of auditing program that private
firms adcpt. Some repcrting requirements could clearly stimulate
the firm to reduce the quality of the environmental auditing
program. For instance, a requirement that all information
gathered be reported to newspapers or envircr.mental groups would
seriously inhibit such programs.
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The firms that were interviewed for this Study indicated
substantial sensitivity about the release of auditing informaticn
outside the firm. This concern seemed to a rly both to the costs
of any such reporting and to what would be done with the informa-
tion if it were reported. There was less concern about the
problem of summarizing and interpreting the data, for this
already takes place when the audit reports are submitted to
senior firm officials. (This, cf course, would not necessarily
be the case for smaller firms.) it is prcbably fair to summarize
the responses as saying that the less information provided to the
regulatcry agency the better, and the most desirable type cf
re ort would be none. In scme cases the res ondent actually
indicated that continued government instecticns would be prefer-
able to recu rinc that audit reports be submitted to aovernment.
Hc’ ever, the government agency probably requires some form
of repo ting if there is to be any ccmmlementar ’ target 4 nc o
incentives offered to induce the adoption of env ronmental
auditing progr ns. It appears reasonable that any reporting
requirements be limited to items specified by regulation and
contained in discharge permits. It also seems to be in both the
government’s and the firm’s interests to keep these reports short
and infrequent —— an annual statement that the firm is in full
compliance might be the most desirable for both, if the govern-
ment could be assured that these were accurate and based upon
adequate information. The annual report could be supplemented by
a fire alarm report if discharges exceed permit requirements by
perhaps more than fifty percent.
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However, there is still the problem of how the government
obtains the assurances it needs. Two possible solutions are .)
the type of third party audit that is required for financial
reports, and 2) the regulatory agency periodically auditing the
auditcrS.
SUMMARY ?.ND CCNCLUSCNS
Environmental programs have th potential to create Su Stafl—
tial benefits for the environment and for regulatory acencies.
The extent to which such benefits are actually realized depends
pr mar ly upon the types of programs ado ted by private fi .s,
and what act ons the agency itself takes in response to the
existence of these programs. The tYpes of programs the fi s
adopt are in turn Likely to be strongly influenced by government
policy decisions. There is a limited number of pOb.Cy choices
that regulatory agencies can make to stimulate the adcpticn cf
cood orog a’”s by private ‘ese ool cv c c es have to be
made very carefully, for the wrong choice could not only eU -mi-
nate many of the benefits, but in some cases could result in the
situation being worse than if the government had adopted no
policy at all.
The first policy relates to the mode of government involve-
ment. Even with no government involvement, some firms have
adopted environmental auditing trograms and these may be generat-
ing important environmental benefits. However, there are no
benefits to government 1 and the benefits to the environment are
clearly limited by the number of firms adopting adequate
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programs. It is likely that government encouragement of auditing
programs would result in more firms adopting them and, therefore,
an increase in the total environmental benefits they provide.
However, the regulatory agency needs to be very cautious about
increasing the amount of involvement beyond simple encouragement.
Offering incentives for the adoption of auditing programs
should further increase the number of firms adopting them as long
as the incentives are not coupled with onerous regulatory and
reporting requirements. Such requirements may well create larger
disincentives than any incentives that the agency could offer.
On the other hand, without such standards, some incentives (such
as eliminating government inspections) could result in programs
being established which result in less compliance than would
occur in the absence of the programs.
The government could, of course, go the whole route and
recuire all firms to adopt such procrams. 1- owever, there may
well be a trade off between the number of firms adcpt ng the
programs and the quality of the programs tha€ are adcpted.
Mandatory auditing may result in many firms just going through
the motions and others reducing the quality of their programs
down to the minimum standards of the government. The extent to
which this happens is likely to depend on what policy choices the
regulatory agency makes with respect to the cther policy options
it has.
Perhaps the most important of these are 1) the policy on
minimum standards and 2) the information policy. If the auditing
program is going to be an integral part of the regulatory
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program, as would be the case under mandatory auditing, or if the
regulatory agency is to provide real incentives for the adcption
of such programs, then it must establish some sort of minimum
standards for these programs. The challenge is to establish
standards which are not inhibiting. Technical standards can be
inhibiting if they are placed too high and if the adoption of the
progr n is voluntary. However, they have to be high enough to
ensure that the program has at least as likely a chance to
identify potential problems as the agency would have had in the
absence of the orcqram. Otherwise, the acenc’: cannot taroet its
enforcement resources in a ccm lemer.tary manner, thereby realiz-
ing the benefits of the environmental auditing procram. Techn —
cal standards may also create problems if they are not appro-
priate in all cases. Frequently the best technical means of
monitoring an analysis is one tailored to a specific situation
being addressed. A regulatory agency is often not adequately
equipped to specify such tailored technical standards.
Similarly, minimum personnel qualification standards are
likely to be inhibiting if they significantly increase the firm’s
operating costs. The requirement of the third party auditor may
also be inhibiting in some cases, particularly where the firm is
concerned about the confidentiality of proprietary information.
Some sort of personnel qualifications may be reasonable, but the
question of whether third party auditing is appropriate is a very
difficult question. Adopting the third party concept should
increase the confidence of the regulatory agency that the program
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is being conducted adequately, but may also Create costs by
disccuraging firms from adcpting programs. It also raises
additional questions about the qualifications and competence of
third party auditors.
Perhaps a policy option which has the greatest possibility
for inhibiting the adoption of such programs, however, is that
regarding information. The more the firm has to make public the
informat cn pro;ided by the program, the more hesitant the f±rm
will be to ado t such a program. On the other hand, the regula-
tory agency needs to have scme access to the information to be
sure that the rcgram is being implemented croterly ar.d that the
firm is in compliance with its en .rircnmental recuirements.
Perhaps the most reasonable compromise in this case is fcr the
regulatcr’1 agency to require pericdic summary renorts on whether
the firm is cr is not iii comriiance with amolicable recuirements.
ny infcrmat on gathered pertaining to pollutants not covered by
these requ rements would not be reportec to tne gcvernmen . Sucn
a policy weuld allow the firm to monitor all potential problems
without the fear that discovering new problems would result in
increased enforcement efforts directed at the company.
Finally, the government agency must determine how it should
target its enforcement resources in response to the adoption of
environmental auditing programs. Two forms of targeting would
seem to produce the greatest benefits. One is, of course, to
target enforcement resources away from firms that have imple—
mented acceptable programs. Again, to be confident that this
targeting will produce benefits the public agency must be con-
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fident that the firm’s auditing program is at least as good as
the inspection and enforcement that would be conducted by the
public agency in the absence of the program. Given the resource
levels available to most regulatory agencies, this is a relative-
ly low threshold.
The regulatory agency could also explore ways of using the
information provided by environmental auditing programs to target
its own inspection and enforcement resources more efficiently.
Again, however, it is necessar’ ; that this information be collect-
ed in such a way as to not inhibit the firms frcm im lement ng
their own programs.
Finally, the extent to which all these policies will in-
crease the benefits of environmental auditing programs wil
depend on how much the regulatory ager.cy knows abcut the problems
it is trying to deal with. If the agency is confident that it in
fact kr.cws the answers to all the cuestions involved in esta-
blishing an environmental auditing program —- what firms should
audit, where they should audit, when they should audit; what
eçuipment and analytical methods they shculd use and how the
information should be interpreted —— then a more aggressive
government involvement will produce greater benefits. However,
regulatory agencies rarely have such extensive and precise
knowledge. In this case the agency may well create greater
benefits by backing off and stimulatinc the firm, which probably
has the best ideas about what potential problems it is causing,
to adcpt the best program it can afford.
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EDWIN H. CLARK, II
Dr. Edwin H. Clark II, the author of this report, is an
economist and engineer who is currently a Senior Associate at The
Conservation Foundation, a non—partisan, non-profit environmental
policy research organization in Washington, D.C. He is directing
the Foundation’s program on Water Resources and Non—Point Source
Pollution, as well as the preparation of the 1982 and 1984
reports on the State of the Envircnr ent .
Prior to cininc The Conservation Foundation in Ncver .ber
1981, Dr. Clark stent three years at EPA, the last year there as
the Acting Assistant Ad ir.istratcr for Pesticides and Toxic
Substances. Sefore joining EPA, he worked for three Presidents
at the Council on Environmental Quality, was on the faculty ci
Williams Coleae in Massachusetts, and worked for a water re-
sources consulting engineering firm. He has done work on the
entire range of env ronmental issues from land use to toxic
substances contool.
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