PERCEPTIONS OF ENVIRONMENTAL AUDITING
- A MARKETING RESEARCH ANALYSIS -
NOVEMBER 1983
BASED ON FOCUS GROUP INTERVIEWS
CONDUCTED
JUNE 1983
Prepared by:
Prof. Bobby J. Calder
J. L. Kellogg Graduate School
of Management
Northwestern University
Evanston, IL 60201
312/492-3522

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Preface to
"Perceptions of Environmental Auditing
-- A Marketing Research Analysis"
EPA's Regulatory Reform Staff (RRS) engaged Professor B. J.
Calder of Northwestern University, a well-known marketing research
consultant, to conduct four environmental auditing focus group
interviews during June 1983. The groups interviewed consisted of
individuals from state regulatory agencies, industry, environmental
organizations, and EPA program staff, respectively. The Regulatory
Reform Staff did not participate in the interviews. Professor
Calder's resulting report, "Perceptions of Environmental Auditing
 A Marketing Research Analysis," follows.
The focus group technique is widely used in qualitative market-
ing research and was chosen to provide potentially valuable insights
into recent developments and future directions of private-sector
environmental auditing (EA). We especially wanted to investigate
whether and how EPA, states, and the private sector might better
encourage EA. The focus group method seemed well-suited to this
investigation, since focus groups are designed not to develop statis-
tically-valid survey information, but to identify key perceptions
held by participants.
This report contains many quotes from participants which
indicate'the content and' tone of such perceptions as of June 1983.
The responses and information in the report provide insight into
different perceptions across and within different groups concerning
EA issues. EPA does not vouch for the accuracy of any of the state-
ments, facts or opinions quoted in the report. By agreement with
participants the selection of quoted comments and the interpretation
of those comments are Professor Calder's alone, and quotes are not
attributed to specific individuals.
Several invitees were unexpectedly not able to participate in
this study. Group participants are, however, identified below to
allow readers to begin to place the material in this report in con-
text. Related EPA reports on the reasons firms install EA systems,
and of detailed characteristics of various operating EA programs,
should also help such contextual evaluation.
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PARTICIPANTS
State Regulator Participants
Cheryl Bartz (MI)
Richard Boardman (PA)
Ron Entringer (NY)
Ken Hollenzer (WI)
William Miron (CO)
Thomas Pluta (NJ)
Russell Rhodes (NM)
Robert Schreiber (MO)
EPA Program Office Participants
Kerry Clough, National Enforcement Investigations Center
Jim Cummings, Office of Management Systems and Evaluation
Lou DuPuis, Office of Water Regulations and Standards
Pam Holt, Office of Waste Programs Enforcement
Gene Lucero, Office of Waste Programs Enforcement
Dave Lyons, Water Permits Division
Bill Pedersen, Office of General Counsel
Jane Souzon, Office of Legal and Enforcement Policy
Glenn Unterberger, Office of Legal and Enforcement Policy
Jim Vickery, Office of Management Systems and Evaluation
Industry Participants
Nick Athantis, Libbey-Owens Ford
Eric Bauman, Cooperative Power Assoc.
Herb Belknap, Texas Instruments, Inc.
Fred Dehn, PPG Industries
David France, Texas Eastern Corp.
David Guthrie, Occidental Chemical Corp.
Neil Helmers, EI Dupont Company
Ron Kagel, Dow Chemical Company
Sam Pellerite, Pennsylvania Power and Light
Ralph Rhodes, Allied Corp.
Paul Schmierbach, Tennessee Valley Authority
Environmental Participants
Rich Liroff, The Conservation Foundation
Thomas Lustig, National Wildlife Foundation
Gerry McCarthy, Virginia Environmental Endowment
Tony Roisman, Trial Lawyers for Public Justice
Regulatory Reform Staff (PM-223)
Office of Policy Planning and Evaluation
U.S. EPA
Washington, D.C. 20460
(202) 382-2726
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CONTENTS
PREFACE 		i
PARTICIPANTS		ii_
INTRODUCTION			_1_
FINDINGS 		_2
1.	Definition of Auditing			_2_
2.	Industry Practices	
3.	Role of Top Management		_8_
4.	Information and Data 		_10_
5.	Incentives for Auditing		_12_
6.	Enforcement		_14_
7.	Disclosure of Audit Findings		F7_
8.	The Accounting Model		1_9^
9.	Type of Companies		2_2
10.	Type of Problem		2_4
11.	EPA Role		2_5
12.	The Future		2_8
DISCUSSION		29

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INTRODUCTION
1. Objective
This report contains marketing research information intended to
assist the EPA in formulating policy with respect to environmental
auditing. The rationale is to better understand the perceptions that
industry personnel, EPA program staff, state regulators, and environ-
mental group members have of auditing. The objective is to provide
policy guidance by identifying key issues seen by these groups and
comparing their points of view.
2. Methodology
The focus group interview technique was used for this study. The
interviews followed an unstructured, open discussion format. From four
to ten people participated in each session and each session lasted
about two hours.
The group process results in a high level of spontaneity and
candor. The discussion is controlled only to the extent of making
sure that topics of interest are covered. The technique is a stand-
ard one in marketing research.
Four sessions in June 1983 were held for this study - one each
with industry personnel, EPA program staff, state regulators, and
environmental group members. The sessions were tape recorded with
permission, and subjected to detailed content analysis.
3. Scope of the Findings
The focus group interview is a technique designed to provide in-
depth rather than statistical information. No attempt is made to
quantify or to statistically generalize the findings of this research.
The goal is to attempt to discover broad patterns of perception that
hold across people rather than to document individual, specific
reactions among people.
It should be emphasized that the findings deal with perceptions
as of the time of the interviews. This report should not be inter-
preted as endorsing the objective correctness of any finding. However,
what people believe to be true influences their behavior and must be
considered in policy analysis.
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FINDINGS
The findings of the focus group interviews are described below.
Differences among the industry, environmental, EPA program staff and
state regulator groups are noted where appropriate.
Quotes from the interviews are included to convey the way in
which the respondents expressed themselves and allow the reader to
better judge the exact tenor of people's responses. The quotes are
also intended to provide a better appreciation of the basis of the
findings. All quotes are typical in that they are similar to those
made by a number of respondents.
1. Definition of Auditing
Among EPA program staff, state regulators, and environmental
members 	 but not among industry personnel 	 there is no clear
concept of what environmental auditing is. There is a variety of
opinion as to what auditing could be, but no clear consensus as to
what the term refers to at the present time. People think more in
terms of a range of possibilities. This makes communication
about specific issues related to auditing difficult. It is hard to
consider specific issues when the basic concept of auditing is
nebulous.
The concept of auditing can range from that of a label applied to
a range of activities that some companies engage in to a specific
program subject to objective guidelines. In the former case, auditing
is more a descriptive term used to refer loosely to a variety of
activities that happen to be employed. In the latter, auditing is a
prescriptive term implying a consensus (or future consensus) about
specific preventive activities that should be employed. Those who
think of auditing in the latter vein realize that auditing is currently
an ambiguous concept. The following comments by EPA program staff and
state regulators are illustrative.
-	"Environmental auditing is pretty much a label for
on-site inspections that may already be taking place."
-	"Environmental auditing is a label for a company
determining whether or not the facility is in compli-
ance with government regulations."
- "Environmental auditing is really a new name for what is
already being done. Someone is just trying to come up
with new and exciting ways to sell it."

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-	"Environmental auditing is a method by which companies
attempt to keep their company from fouling the air or
water. It involves the use of specific practices and
procedures that companies can adopt."
-	"Environmental auditing goes beyond just reporting data
on your effluent or your product. There's a lot more
attention to prevention. The company puts in specific
procedures to assure prevention."
-	"Part of our inspection program is doing environmental
audits now - we do it all the time. Though, if done
properly by the company it probably should be done in
more detail in terms of preventive maintenance. And it
should also be done more frequently. It is just the
company taking on itself this kind of program."
- "We, the EPA, is confused about what we want. We don't
really have a definition of the terms or of the program
we really want to promote."
The semantics of auditing is further complicated by whether it is
thought of as basically voluntary or as legally imposed. Many EPA
program staff and state regulators associate the term with court
orders for mandated auditing programs. They do so even though they
realize that others are using the term more broadly. The connection
between auditing and enforcement will be discussed more fully later.
It is important to note, however, that the voluntary-mandatory
dimension colors the basic concept with which people begin thinking
about auditing. It is also a major source of ambiguity.
-	"We have to stick to a voluntary approach and take the
best out of the system that it has to offer and use it
to augment those regulations you know you have to have."
-	"You'd have a much less difficult time selling the concept
in areas where there are mandatory penalties as opposed
to areas where there are flexible penalties."
-	"Concepts like this are the second wave for agencies who
are responsible. The limits were put in place in the
first round. But there is concern over continuing compli-
ance. Someone wants environmental auditing to be put in
place to assure continuing compliance."
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- "We seem to have two different approaches in mind.
The first is to foster this voluntary audit to have
us accrue all the environmental benefits. On the
other hand is the mandatory approach connected to an
enforcement action. We want to push people into
thinking prevention instead of correction. I worry,
though, about our lack of credibility of enforcement
that we have in this agency."
Environmental-group members tend to consider auditing as simply
a label that describes the activities of some companies. They feel
that companies should engage in such activities for their own purposes,
and that auditing as such is not an issue of general concern. There
is also some sentiment, however, that auditing could be expanded to a
broader concept of companies seeking actively to assess their actual
environmental impact. While such a broader concept is of much more
interest to environmental members than the narrower concept, they are
not optimistic that auditing will become so broadly defined.
-	"I'm interested in the end-of-pipeline results. The
air and water needs to be cleaned up. I'm not interested
in anybody's saying they are doing a good job - especially
to each other, internally. Now if they want to go out
and do something extra - take new measures, push for
better results . . . that would make auditing something
entirely different."
-	"The function of an audit is to bring things up to
normalcy. Anything else is a pleasant bonus."
-	"I'm not sure this is what is meant by auditing . . .
in fact, I'm pretty sure it is not . . . but they could
go out and really audit what they're doing. I mean
audit the environment for problems. Beyond regulations."
The semantic ambiguity surrounding auditing in the minds of EPA
program staff, state regulators, and environmental members contrasts
sharply with the view of industry personnel. Industry, as discussed
in the next section, sees auditing as a much more sharply defined
set of practices.
2. Industry Practices
Industry views auditing as primarily a label applied to a set of
internal activities. The main purpose of auditing is not to check
data or obtain new data. It is to assure decision-makers that
appropriate procedures to assure compliance with environmental regu-
lations and policies are actually being followed. To respondents
from the larger companies included in this study, the prototype
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situation is one involving corporate decision-makers checking on
field personnel. The audit is basically a check that agreed-upon
corporate compliance procedures are being followed in the field.
The primary thrust of auditing for industry is thus to establish
procedural compliance, on the rationale that if proper procedures
are followed, proper results will generally follow.
-	"We do it yearly from the corporate office; there is no
auditing, per se, from the plants. Our people go out
and audit. We think we have pretty well fixed every-
thing. We are looking for risks as well. We want to
make sure things are as they are supposed to be - people
really doing what they are supposed to be doing."
-	"We ask individual plants to develop auditing for their
site - set up procedures which are evaluated for what
they are as well as how well they are being followed."
-	"We do several kinds of audits. We do it by division and
also may look at one element such as asbestos, and look
at it all the way across one agency. The audits are con-
ducted by the corporate staff, perhaps including division
experts. The reports are computerized and follow-up is
done. The main thing is to check on what people are
really doing out there."
Coupled with this procedural focus is the notion that one of the
biggest benefits, if not the biggest benefit, of auditing is to increase
field personnel's awareness of corporate directives, and its value as
an educational tool. As such, auditing is viewed as an instrument of
change at the field level. Most industry personnel see auditing as a
top-down change process rather than as a bottom-up reporting require-
ment .
-	"We started auditng in the divisions in 1978. Starting
this year it is a corporate function. We have audit
teams (technical environmentalists). We study the facility
before the on-site audit. We check awareness, concern
and level of expertise with on-site people. We meet with
facility people both before and after the audit. The
plan requests 30-day compliance or fixing of problem."
-	"We have an audit in place [at the corporate level] and
it is only a part of our total program: corporate comes
in and audits the divisions on a yearly basis. The divi-
sions have a team [that does the corporate audit] that
goes in 3-4 times a year. The audit is complete and deep
and four days long. We audit technology and awareness.
When finished we present both a verbal and a written
report. The site has 90 days to respond."
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-	"Our first assessment audit was 1978. Today we
are on our third variation. It has evolved into
making more frequent but shorter visits. We get
our report to plant management right then and
decide with them what to do - at the time of the
assessment. We recently entered all the plans into
the computer and are now beginning to monitor."
-	"One of the best things that comes out of our program
is almost an education, to the people in the field.
They really aren't aware. The auditor is well versed,
can help solve problems. This shows the company cares."
There is a feeling that auditing is not really a new development
among larger companies. Some curiosity was expressed in the focus
groups as to whether medium-level companies, companies that do not
have as large a gap between corporate and field operations, will find
auditing as useful as larger companies. The few companies in the
focus groups with more recent programs were optimistic.
-	"Auditing isn't really anything new. We've been doing
it for a long time."
-	"We're in the process of developing our audit program.
We're convinced it is a useful tool for us."
When industry personnel think of expanding auditing beyond the
concept of an internal check to verify and validate compliance proce-
dures, they think of expanding the same set of practices to new
areas. They do not think in terms of broadening their concept of
auditing activities. Auditing vendors [firms from which materials
or services are purchased] is a good example of this.
-	"We don't use any disposal contractor until we've gone
to the site, inspected, looked at their practices,
looked at their permits and licenses. That's the kind
of thing you can get into."
-	"We look at permits, regs and contracts with outside
vendors. For example we want to make sure there's no
PCB contaminant introduced into our system. Companies
could do more along these lines."
Although some industry personnel use the term "environmental
auditing" for their activities, many do not. Moreover, there is
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considerable sentiment that "environmental auditing" may not be the
best term, or even a very good term. Many feel that assessment is a
more neutral term and that auditing does not sufficiently capture the
review-like nature of the activities.
-	"We don't use the term auditing. We have systems review:
look at procedures and systems; then have our environmen-
tal assessment program. It will look at compliance. We
are now in the process of setting the program up."
-	"We use rather than environmental audit, environmental
assessment."
-	"We started out with assessment, then to audit, then back
to assessment. We didn't like audit because it means
comparing with something. What we are really doing is
reviewing."
-	"Our policy indicates review and audit, rather than just
audit."
-	"Actually you can call it whatever you want as long as you
define what you mean. Audit may not be the best word."
Finally, industry does not see auditing as being defined entirely
in terms of monitoring compliance with regulations. The focus is more
on internal policies that have been developed in part to reflect
regulations. The audit is conducted to assess whether these policies
are being carried out.
-	"There are two things you do in an audit. There are the
routine things you do when you're observing and recording
facts, records and permits. Then you get into the second
area where you are making judgments, make decisions based
on management attitudes, knowledge of regulations,
condition of maintenance equipment."
-	"We are looking for compliance with the law, but we're
also looking for compliance with company procedures
and policies."
-	"The way we audit goes beyond comparing ourselves to a
standard. We make moral judgments, too. Judgments based
on company policy.
In this connection there is concern that the very vagueness of
regulations is a major hindrance in that it is difficult to review
against them.
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-	"We try to get as much information in advance because
some state laws are different than federal regs -
screwy, really, and we wa,nt to know in advance what
we're measuring against."
-	"We've developed our own specifications against which
to audit because the regulations are so vague."
-	"Ours is on-going, changing things as regulations change."
3. Role of Top Management
For industry, environmental auditing is a label designating
procedural reviews of field operations. As already noted, auditing
at this point is a much less specific concept for EPA program staff,
state regulators, and environmental members. An important consequence
of these differing views has to do with the role of top management.
In some companies auditing was initiated by top management. In
others, the main impetus came from farther down in the organization.
-	"The driving force in our company came from upper
management."
-	"For our company each plant has much autonomy - almost
each is a small company. The impetus for auditing came
from corporate management."
-	"We see ourselves as working with the line people,
providing them with an incentive rather than top manage-
ment incentive [directives]. They are interested but it
was not initiated by them. In fact, they have the idea
that the environmental problems are already handled."
-	"The driving force to do an audit really came from the
division people - the division environmental people -
not from on top, but from the bottom."
-	"Our plants are also autonomous, but the impetus came
from the plants."
-	"When our program began I think upper management thought
we'd go a couple of rounds, get everything into line and
stick these people back in licensing, and everything
would be over. That was eight years ago- and we're
still going strong."
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Regardless of whether top management had provided the impetus for
auditing, industry participants felt their auditing to be primarily
targeted at field operations. The goal is to make sure that field
employees are actually following procedures. If they are not, the
audit serves as a tool for changing their behavior. Providing infor-
mation to top management is incidental. Along these lines, auditing
is not intended to ascertain risk. A study different from the audit
would be used to advise top management about legal exposure. There
is considerable interest in risk assessment. But auditing is somewhat
tangential to this.
-	"An audit is not done to keep management informed. The
purpose is to make sure that people in the plants are
doing things right."
-	"It's not a management information tool."
-	"Audits are not done to determine risk or anything like
that."
-	"If you were going to do a risk assessment, that is what
you would do."
In contrast, participating EPA program staff and state regulators
tend to see environmental auditing as a source of information and even
illumination for top management. They believe that auditing will
create more awareness of problems and elicit greater involvement.
Auditing information is thought to be critical for risk minimization.
-	"Some plant managers are real difficult but the corporate
level may get involved as a result of the audit."
-	"What the audit could do is let management know what's
happening. If they knew, they would take more action."
-	"Management has a broad picture of what they want. But
dealing with people two or three rungs down is different.
The legal people hassle, the plant managers see only
their plant and their production. Auditing might get
management more involved in details."
-	"To assess risk they really need an audit. It gives
management the information needed to evaluate risks."
Environmental group participants also see auditing as increasing
the awareness and involvement of top management. They are, however,
skeptical that this alone will have much impact.
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-	"Auditing will make management better informed. If laws
were enforced, then management would want to make changes.
But the laws aren't strictly enforced now."
-	"I think the audit is an excellent tool for the management
of a company to use if the management cares about the
environment. But the government also needs a good enforce-
ment plan to encourage company compliance."
-	"I'm enough of a cynic to believe that change will come
about only when upper management believes that the in-
formation they are learning will make a difference. And
why would you bother upper management that things are
out of order when no one was doing anything about it
anyway."
4. Information and Data
Industry personnel point to interviews with employees as a major
source of audit information. Checking documentation, such as job
descriptions, is also important. Effort is mainly directed at discover-
ing actual problems, although discovering potential problems receives
attention, too.
-	"We found in one case by questioning people that sample
collection was not being correctly taken and because
of that they got very low counts."
-	"We audit to see if environmental responsibilities are
formally spelled out in a job description. We also have
a formal goals/results program to make sure that we are
in compliance and doing more."
-	"We have done some checking ourselves and have found some
problems that wouldn't have come up if we had just looked
at records."
-	"Sometimes you find a lot of noncompliances out of one
area. You go back and try to figure it out and help
that guy come into compliance."
-	"We are auditing for vulnerabilities that could lead to
noncompliance. And we do find problems in the making."
Primary data is seldom collected by company auditors. Audits
include checks to confirm that quality assurance procedures are being
followed but quality assurance is not part of the audit itself.
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-	"Continuous monitoring is fairly easy to check. For
non-continuous you have to rely on company logs and
recordkeeping for direction."
-	"Quality assurance is important. We make sure the
correct assurance procedures are in place and operating
correctly and then monitor to make sure."
-	"We look at samples and equipment and performance for
quality assurance, but rarely do we actually collect
data."
-	"We feel uncomfortable about something, we may collect
data ourselves, but rarely."
EPA program staff do not have a fixed conception of what information
and data should be included in an audit. But there is a feeling that
the audit should involve more complete data than is normally compiled
- data that give a better picture of actual operations. And an audit
should ideally delve into improving control processes. Several EPA
program staff participants characterized what they had in mind as a
"deluxe" audit.
-	"Deluxe would mean someone was in there watching the
people, viewing the circumstances, not just re-viewing
the data. An on-site evaluation during the physical
operation."
-	"A deluxe program is the one that gives you the most
data about actual compliance - daily in air and water."
-	"A deluxe audit would go a level beyond compliance with
regulations to identifying opportunities which would further
eliminate environmental problems. You could get to~
better safety, better awareness on the part of all
employees."
Environmental group members assume that a meaningful audit would
necessarily go beyond inspecting records. Collecting original data
would be essential.
-	"The only way to have a reliable audit is to do original
testing. Not in all cases, but in some suspect areas."
-	"The audits would have to be all inclusive, not only
checking recordkeeping and procedures, but getting raw
information. Auditors would have to make sure that the
equipment was working as intended."
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5. Incentives for Auditing
There is consensus among respondents that formal incentives
should not be awarded by regulators for environmental auditing,
since the appropriate incentives are inherent in the regulatory
process and the kind of additional incentives available are not
likely to improve auditing.
EPA program staff appear to believe that auditing should be
treated informally as with any other indication that a company is
making a real effort. Companies with auditing programs are more
likely to be "good guys." Evidence of a serious auditing program can
thus be taken into account in dealing with a company. More formal
incentives might even compromise regulatory control. It is thought
that the basic incentive for auditing lies not with the regulator
but with the company. Auditing assures the company that it is in
compliance and minimizes exposure.
- "Companies that have environmental auditing want to	talk
to each other, like to see what other companies are	doing
to improve their program. This serves as a sign to	us
and we take it into account."
-	"We can offer a benefit of self-auditing. It changes the
adversarial relationship between agency and company when
the company is trying."
-	"An industry can say, 'Look at what we did - we found a
a problem, and corrected i.t and the agency didn't take us
to court. There are these kinds of self-positives that
a lot of companies are going to capitalize on."
-	"I don't think they need a particular incentive. What
they are doing cuts down on the liability. To me that's
an incentive."
-	"You can't come up with a system that gives carrots to
both sides - incentives, that is. You can't give concrete
incentives to companies without losing some of the regula-
tory oversight."
-	"If the company is in an area where they have millions and
billions in liability penalties, you are more likely to
see environmental auditing in place."
-	"The motivating forces are not going to be the regulations.
The company is going to do it because of a stronger finan-
cial incentive, reduced performance bonds, changing insur-
ance rates, and reducing liability."
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-	"We [state regulators] feel that the greatest benefit of
environmental auditing is for the companies in terms of
liability prevention: toxic waste, pollution, that
auditing is a low-cost insurance program."
Reduced inspections are considered a possible incentive by state
regulators but are not thought to be especially meaningful.
-	"In practice what are the real benefits to industry. We
talk about reduced inspections. I can't even keep up
with the inspections I'm supposed to do."
Environmental group respondents resist incentives on more
philosophical grounds. They argue that not polluting the environment
should be the major incentive for auditing. Auditing is something
that "good guys" should do as a matter of course. A company that
does not audit cannot be trusted simply because it suddenly initiates
an auditing program.
-	"To me, the audit's principal benefit is to the managers
and stockholders and their own self-interest in not
getting caught with their pants down when it comes to
environment. To the degree that it helps the EPA [that]
would be a pleasant bonus."
-	"If the audit were to keep you from being fined or publicly
embarrassed or dragged through the courts, then you might
decide to adopt it."
-	"Companies aren't supposed to pollute, aren't supposed to
be fouling up. You are supposed to go on without harming
the environment."
-	"As I understand the EPA, they are using it as a way of
identifying 'bad actors,' showing better compliance,
avoiding environmental problems. But just auditing, by
itself, doesn't prove much."
Industry respondents do not look to regulators for incentives.
They do not believe that regulators have anything very meaningful to
offer as incentives. Auditing is not undertaken with the idea of
incentives in mind. Companies expect to be acknowledged as "good
guys" because of activities such as auditing. The public relations
benefits of auditing are obvious and are a natural by-product of
auditing rather than an incentive per se. The basic incentives for
auditing are internal financial and management control considerations.
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-	"The benefit to the regulated company is finding the
problem. By preventing it itself the company can save
some thing."
-	"The real benefits fall into some financial benefit to the
company in some form - reduced insurance premiums, feeling
comfortable that they can defend themselves a little more
quickly, whether they can offer something in mitigation
and reduce a penalty by convincing an agency that the
company is doing their best. Other than that it won't
change things very much."
-	"The bottom line is a cost benefit to the regulated person."
-	"If a company is going to pay less for an audit to keep
on top of things than they are going to pay for penalties,
you'll probably see audit programs."
6. Enforcement
Any link between auditing and enforcement activities is resisted
by industry respondents. In their opinion such a link would damage
the acceptance of auditing within the company.
-	"The program should be voluntary and flexible, not mandatory.
Forced auditing would kill our program."
-	"Auditing has a role within the company. Tying it to
outside, external pressures would change how it is done.
It would destroy our effectiveness."
-	"If the EPA were to come in [with formal enforcement of
auditing] we would do something like compliance assessment.
We certainly wouldn't go above and beyond."
The view that enforced audits could reduce the effectiveness of
current auditing efforts is shared by EPA program staff. They do see
a positive impact from enforcement, however. Better enforcement of
existing regulations would increase auditing among companies. Auditing
is seen as a logical response to greater enforcement activity. The
audit would become a major tool for avoiding the consequences of
noncompliance.
- "I think we have the mechanism now in the acts to drive
auditing into every company that has enough money to
put it in by defining noncompliance as any violation
greater than what the standards call for on the basis
that that is the minimum they are supposed to do."
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-	"The more the regulated community sees the need [intention]
to enforce, the more incentive they have to audit."
-	"A sure enforcement program will generate audits. If the
company is sure the state will turn up on the doorstep
any time, then they might take steps to avoid liability."
-	"I think we should force the hell out of the law and
we'd get auditing like crazy."
-	"The audit process could make companies much more aware
of the problems. If the laws were enforced, companies
seeking compliance could and would audit. That audit
would help the regulated company by pointing out needy
areas, elevating the company interest in the environment."
-	"Our regulations really aren't sufficient, really adequate.
The companies who are really doing the most creditable job
are doing a lot more than the regs require."
This relationship does not require that auditing be an arm of
enforcement.
-	"Enforcement will make companies audit, but the agencies
shouldn't use the audits to enforce. We really can't
use the audit against a company on technicalities."
-	"I can see enforcement driving the need for audits. But
audits are not to enforce."
State regulators share the concern about mandatory auditing, but
some feel that some enforced auditing would lead to more auditing.
-	"Every company that I've run into who has auditing says,
'Don't regulate it.' One state agency can't really give
anything as an incentive. We don't have enough people
to inspect as much as we should now. In the hazardous
waste program we couldn't stop or decrease our inspections
because we'd get lynched by the public, so strong is their
interest."
-	"The larger companies, many of them already have environ-
mental auditing and don't tell the EPA about it because
they are afraid of having it become mandatory."
-	"We don't need to mandate this at all. If it is good, as
we seem to think it is, the companies will discover it
on the i r own."
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- "How companies react depends on how auditing is set up.
It's one thing to say, 'Thou shalt audit.1 It's another
to prescribe just what the audit should be. It has to
fit the company. How do you tailor it to fit different
kinds of companies, different management philosophies."
"Companies that have auditing in place have seen real
benefits. Those who don't may think it is a joke, but
as time goes on they will learn from those companies
who use it, and will implement it on their own. This
could be accelerated if it were a regulation."
-	"EPA should do a better job of enforcing the law and that
might stimulate more audits. They also should look into
whether it is good to institutionalize the audit, not
just encourage it."
-	"We want to adopt a reasonable enforcement posture. We
have to have reasonable criteria to justify what we have
done enforcement-wise. We have to defend our actions."
Environmental group members do not object to forced auditing in
principle. Since they see auditing as presently an internal corporate
matter, however, they put more emphasis on greater overall enforcement
of regulations. Such enforcement would cause a dramatic increase in
the desire of companies to audit effectively.
- "Better enforcement will produce more audits. The
biggest problem we see is the lack of enforcement
- not only in Washington but in state governments as
well. We see a real reluctance to enforce the law
vigorously. When all else fails - negotiations,
promises - only then is there enforcement."
-	"The EPA should enforce the law and make it attractive
for these specialists to develop."
-	"If you have a vigorous enforcement program and go
after the bad actors, that sort of encourages companies
to audit. It might also encourage some state govern-
ments to get on the stick."
-	"This has to be tied to the enforcement program.
Enforcement becomes the steam that drives the engine."
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7. Disclosure of Audit Findings
Industry respondents are very much against requiring public
disclosure for audits. There is concern over exposing proprietary
information and risking attacks by the press and environmental groups,
There is also the more general feeling that disclosure, as with
enforced mandatory auditing, would undercut the ability to conduct a
truly useful audit.
-	"We're concerned about disclosure. We use block-flow
diagrams, much information in which is proprietary
and secret."
-	"Once the regulatory agencies have copies of your
documents, they become available, under the Freedom of
Information Act, and newspapers or competitors can get
them."
-	"Many technical violations come up for several reasons
and you can come up against violations that have no real
value to environment. And if disclosed, you can really
get tied up."
-	"Disclosure will discourage those people who don't have
programs started and dramatically affect the way we run
our programs."
-	"Disclosure could force the company to keep two sets of
books - one public disclosure, the other down to brass
tacks for company use."
Industry personnel also worry that public disclosure would greatly
increase the involvement of legal staff in auditing. At present
legal departments are either uninvolved or are involved in an equal
working relationship with auditors. The fear is that disclosure
would create a "review" relationship that would hinder the auditing
process.
-	"We spent a year selling our audit to management,
particularly the legal department who had problems over
di sclosure."
-	"If legal had to worry about disclosure they would just
sit on us."
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However, EPA program respondents see a time dimension for the
issue of public disclosure of audit information. For now auditing is
internally focused and disclosure, while perhaps desirable in the
long run, might do more harm than good. Eventually, however, an
external role for auditing may develop. This would in part be due to
the requirements of insurance companies and the like, since firms
audited by third-party insurers may want to have audit results made
available to regulators.
- "If we had pu
in technical,
have clear st
procedures."
blic disclosure
legal and mech
andards, tested
, we 1d quickly
anical difficu
laws or the a
find ourselves
lty. We don't
ccounting
-	"Doing an internal audit will be complete for the company.
They have more expertise about their facility than any
outside auditor could have now. Though I could see an
external audit being done in the future, particularly
for publicly held companies. That information would be
made public."
-	"At some point you'll see disclosure. It wouldn't be
appropriate now. In the future, insurance companies
will do audits in order to insure. This is what is going
on in hazardous waste now. Anyway, this should lead to
disclosure - and acceptance of disclosure."
EPA program staff's reserved at
prompted by the feeling that disclos
boomerang effect. The EPA could be
that it would otherwise not pursue.
titude toward disclosure is further
ure could potentially have a
pressured into pursuing cases
-	"Could we really hope to pursue everything that public
disclosures might reveal."
-	"Disclosure could boomerang. Out comes something and you
have to take action."
State regulator respondents share these EPA program staff concerns
about disclosure. However, some think information that might have an
impact on environmental quality ought necessarily to be public.
Disclosure is a matter of the public's right-to-know, and the public
concern caused by disclosure of unfavorable facts could be useful,
especially as an alternative to stimulate auditing.
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-	"If we ask a question, they have to answer. This goes
for audit results as well as anything else."
-	"We keep information that is secret from the public, but
theoretically the industry shouldn't keep secrets from
us - secrets dealing with environmental impact."
-	"An alternative to environmental auditing . . . look at
what occurs with drinking water - a public notice disclo-
sure that announces noncompliance. Minor municipalities
are a lot more attentive when angry constituents want to
know why their drinking water doesn't meet standards.
This could work for industries because they would be
embarrassed to have to explain why they don't comply
with environmental standards."
Opinion among environmental group members is sharply divided over
whether disclosure would be beneficial. But environmental respondents
tend to see disclosure as less of an issue in and of itself than do
other groups. This is because they believe that, if audits do uncover
valuable data, then regulators should already be requesting that
data. And if the data are really important, they should be collected
by the regulators. Disclosing audit data is therefore something of
a moot point.
-	"When they find dirt they have to report it and correct
it. That's the law. You don't need requirements about
audit disclosures for that. So, yes, disclosure is a
good idea. But it is really beside the point."
-	"I'm more interested in results, not how they got there."
-	"Except for disclosing the presence of a violation, they
don't have to disclose but the normal ways: a lawsuit
or under 308 letter request."
8. The Accounting Model
Use of the term "auditing" unavoidably gives rise to connotations
associated with accounting audits. The term implies a distinction
between internal versus external auditing, as well as the existence
of audit standards and professionally certified auditors.
Consistent with their other views, industry respondents resist
any parallel with the external financial audit. They do not feel
that any outside auditor could accurately report on their company or
industry. The accounting model thus does not really apply.
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"Setting up an audit is a totally internal process that
is unique to each company and I don't see a role for them
[outside auditors]."
-	"I don't want EPA to mandate a program or to license a
contractor and make you use a licensed contractor."
-	"They, independent auditors, can't do as good a job as
internal."
-	"How money flows is pretty common from company to company,
but when you get into the environmental process it differs
from company or plant to plant."
-	"We were charged to hire an external auditing firm. We
did; they had good people; they wrote some nice reports
giving us visible credibility. I don't think it improved
the air or water quality or reduced hazardous wastes."
-	"We had an outside audit to kick off our environmental
program. We wrote a description of the facility and gave
the bidding companies the opportunity to visit the sites
in order to know what to bid on. The bids came in and
they varied from $30,000 to in excess of $300,000. They
had no idea how to do it."
-	"I don't see a compelling urge to create this group of
third party auditors. If they are out there, fine. I
don't see them doing much good."
EPA program staff respondents, on balance, appear favorably
disposed toward the eventual emergence of external auditing and
professional auditors, although they realize that this alternative has
been proposed and rejected and that the state of environmental
regulations and standards would make this difficult. However, there
is some hope that much could eventually be accomplished within an
accounting-type model.
-	"If all the conditions are in place an environmental
audit is not unlike a financial audit."
-	"You'd like to have something analogous to the C.P.A.
system - a profession called 'environmental auditors'
who are certified. We have to rely on them to represent
us honestly. There has to be some vehicle in place so
that where they don't, they can be exorcised from that
group. They would have clear standards of performance
and professional equipment for monitoring."
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-	"Financial auditing has a long historical development;
we've reached a point about how it's done and what's
relevant. Environmental auditing ... is just beginning,
and is on top of laws which are not very old and full
of all sorts of holes."
-	"I think it's a good idea to use a third party person as
a permanent day-to-day watchdog at the particularly
severe and complex companies."
-	"If a third party is 'auditing' day-to-day, that becomes
inspection and enforcement. Despite the problems, the
accounting idea is attractive. It could work well."
Environmental group respondents find the eventual emergence of
some form of "external" auditing out of internal auditing a possible
scenario. But there is almost as much concern over the quality of
outside auditors and how much they can be trusted, as there is over
the quality or meaning of internal audits. Procedures would have to
be developed to make sure that outside auditors were thoroughly
i ndepe nde nt.
Some environmental group respondents also suggested that outside
audits would have to go beyond the financial model with its focus on
assessing the company to focus instead on assessing environmental
impact itself.
-	"It may be that the C.P.A. industry created the financial
audit, rather than the other way around. Environmental
audit management teams might come into being. But we
don't want just another window-dressing layer of bureaucrats!"
-	"Maybe ten years down the road when each type of audit has
a history, you might be able to choose one as much more
reliable, then you can give an incentive to the companies
doing the outside [the company] audit - maybe a Class A
certificate."
-	"Auditors need to have a real good independent system with
almost an enforcement built into the audit."
-	"Audits of publicly held companies should be done by
qualified people, secondly they have to be outside the
company and there are fairly rigid rules to be followed
in order to issue a statement. All publicly held companies
should have a strong statement that the company indeed
is doing what it says it does and doing the right thing."
-	"Most environmentalists believe consultants to the
industry no more than they believe industry when it
comes to a matter in dispute. I don't know if you can
develop independent outside auditors."
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-	"The audit can't be [wholly]	internal. There has to be
some interaction between the	company and EPA or the state
agency to make sure that the	audit is being properly
conducted and that the right	things are being audited."
-	"This concern about environmental auditing as compared to
financial auditing goes beyond investors' concerns because
life quality is concerned. Not only may investors lose
money because of judgments incurred, the environment is
often damaged. There is an order of magnitude difference."
The third-party audit scenario is considered by both EPA program
staff and environmental respondents to be a potential future develop-
ment. However, it does not appear to be seen as an exclusive devel-
opment, but rather as a supplement or option to internal audits.
The underlying concern seems to be assuring the reliability of audits,
regardless of how they are done.
9. Type of Companies
There is agreement that size of company is the critical variable
affecting the spread of auditing. Larger companies have been the
first to adopt auditing. It remains to be seen whether smaller,
medium-size companies will find audits useful.
As noted earlier, industry personnel are curious as to whether
auditing is needed in companies with less of a gap between corporate
and field operations. There is some feeling that an incentive of
some kind might be necessary for these companies.
-	"For some smaller and medium-sized companies maybe there
would have to be some sort of incentive to at least
entice those management types to want to work out a long
range plan."
-	"Smaller companies need an incentive to go out to find
the problems. If you don't know about them, you can't
go after them."
EPA program staff sees medium-sized companies as an important
target for auditing. Like industrial personnel they are uncertain
about how attractive auditing will be to these firms or how attractive
it could be made.
- "There are tiers of companies. In the first tier of
large companies, auditing occurs and will increase.
The second tier, middle-sized companies have not yet
caught the idea. They should be our target. We don't
know how interested they will be."
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-	"The problem is how to get to the second tier because
they lack the R&D budgets, the policy shops, whatever,
and they haven't caught fire yet."
Auditing is viewed by state regulators as a potential new tool
for assisting smaller companies. It is these companies who have the
most problems and auditing could be positioned as a means of assistance.
-	"Smaller industries have the most needs and the most
problems. Auditing for them could be held up as a
solut ion."
-	"We're interested in learning about how auditing can be
applied to smaller companies. We think there is cost
benefit here. The smaller a company gets it may not be
effective for a company to audit. We're working on a
workshop to spread the message to smaller and medium-sized
companies to help them develop. We're looking at this from
a technical assistance viewpoint, a way of helping
companies and to supplement our regulatory approach."
-	"There is promise for the smaller companies and smaller
industries if they have any associations or groups which
could provide an auditing service, probably at a less
expensive rate than any other rate. An example is coal
mining in one state, an expert on the association staff
can prevent a lot of problems if the individual coal
companies cooperate."
In addition to medium-sized companies, state regulators view
municipalities and municipal enforcement problems as especially likely
to benefit from auditing.
-	"It's difficult to enforce [regulations] against
municipalities. What do you do? Put the city officials
in jail? Shut down the incinerators or waste treatment
facilities? They can't get funding from state or federal
government. They have to tax the people, if they can.
It's a real problem."
-	"Small municipalities and small industries often do not
have competent people whose job it is to make sure of
environmental compliance. It is part of someone's job,
someone not trained or who is more interested in some
other facet of his job. Having audit models or examples
for a given industry or facility would help these kinds
of companies."
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- "We intend to concentrate not on the industries, but
on municipalities to make sure that they take care of
treatment plants. We are looking at auditing as a way of
keeping these in line and clean."
10. Type of Problem
Industry participants consider auditing to be a process that
applies across media. They do not think in terms of auditing applying
more to one problem than another.
For EPA program staff and state regulators, however, hazardous
waste problems seem particularly to lend themselves to auditing.
This is because of the severity of the problem and the public attention
it has received. In addition, regulatory issues and enforcement are
relatively less clear-cut than with other problems.
- "Can mandatory auditing prevent the catastrophic
accidents?"
-	"Hazardous waste inspection is different than other
areas, given the public's concern over the issue."
-	"In hazardous waste a tremendous liability can ensue
rapidly. They damn well better figure out a way to learn
what is goi ng on."
Environmental group respondents agre
should be emphasized in using auditi
environmental group members are also
associated with problems in other me
prematurely conclude on the basis of
a negative impact.
e that hazardous waste problems
ng. However, unlike other groups,
concerned that the vague standards
dia might cause companies to
audits that they are not having
- "The enforcement and monitoring scheme should pay more
attention to the	companies which are the most potentially
dangerous to the environment, as with hazardous waste
disposal."
-	"The audit can persuade the company that it's doing a
great job, when in fact it isn't. Once convinced that
their audits are good they can become very difficult to
persuade to improve their techniques. This is more
prevalent in areas where standards are less certain."
-	"Industry can use the lack of knowledge for the
justification for less stringent standards and not
commit itself to a thorough program of monitoring.
Audits could increase this tendency in some areas."
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11. EPA Role
Industry believes that the EPA should play a clearinghouse role
in encouraging environmental auditing. To do more than this might
create resistance to auditing within companies. The clearinghouse
role is most compatible with auditing as an internal function.
Emphasis should be on making known what other companies are doing.
-	"I see as role for EPA as education and a clearinghouse."
-	"EPA made it clear that they will not certify audit
programs. They should serve as a clearinghouse. Nothing
more."
- "We'.d prefer to leave things just as they are. A useful
role would be one of letting us know what others are
doing - to give us ideas."
There also appeared to be little enthusiasm among EPA program
staff for an extensive auditing program at this time. Most feel
that the basic impetus for auditing is already in place. A clearing-
house role is almost a given. This would go beyond industry's concept
to emphasize technology transfer. Beyond this, some program staff
see a need for more active promotion, but they did not believe the
need for such activities (workshops, etc.) is pressing in view of
the momentum already associated with auditing.
- "I think environmental auditing would go on even if we
[EPA] stopped doing anything on it. I think our approach
should be to encourage it: assisting, being a clearing-
house, and analyzing. There should be no new crusade
initiated. "
-	"EPA's role should be relatively minimum, an information
exchange. We keep our own course, and give people
latitude to decide what to do."
-	"We can help with technology transfer from one company
to another, especially in the area of hazardous waste.
We can hope to see some kind of preventive behavior
on the part of industry. It would help us target the
likely candidates for inspection. It would also help
us keep people in continuing compliance."
-	"Maybe we can encourage through technology transfer or
tell them about example cases they may want to use or
perhaps point out their benefits of pursuing such a
program."
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There is also some feeling, not well crystallized, that EPA
will eventually need some way of evaluating audits. It will be in a
position of having, at least implicitly, to endorse individual audit
programs. Related to this is the feeling that auditing should have
some demonstrable environmental benefit, something more than its
convenience for the company's own use.
-	"There have to be safeguards for the agency so that we
can testify to the courts or the public that the audit
done by the industry was a valid one."
-	"I think EPA should say to the companies some of the
things we want out of it, something to help us. An audit
does have to be program specific and enforcement
specific. We would want certain things out of it."
Among state regulators there is some confusion over EPA's role.
They see themselves as having a clearinghouse function and as already
beginning to promote appropriate uses of auditing. It is not clear
to them what else EPA could add.
-	"We are going to put together a brochure for small and
medium-sized companies about the benefits and programs
available, what other companies have done, how implemented,
cost and presenting a workshop for assistance. The
economic position of our state stops us from being any
kind of a leader in this program if industry doesn't
want it."
-	"We had a series of workshops about the same time that
EPA was beginning to push auditing. The companies at
these workshops thought it was something they should
have the opportunity to do, the right to monitor their
own compliance with the laws. We set up a task force,
and heard increasingly that the EPA should provide
technical assistance for auditing, but it should not be
a requirement. Companies want to run it themseles."
-	"We have an industrial assistance program where if we find
noncompliance by a company we [the state] have 60 days to
help them get into compliance. We help them understand
the regulation."
-	"I can't think of a role [for EPA] other than what we
already do. We want to help companies who want help in
compliance and we want to penalize those companies who
try to get away with noncompliance. What else can we
do?"
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- "It's difficult for me to see more we can be doing beyond
what we already do except going out to sell it to trade
associations and industries. To tell them what we see
as benefits, but really it's up to them to decide."
Environmental group respondents have one overriding concern
about EPA's role: EPA should not "audit the audits." This would
entail an unnecessary and probably ineffective expansion of the
bureaucracy. EPA should, consistent with their other views, concen-
trate on enforcing the law. If this were clearly understood, then
environmental respondents would see no harm in some minimal technical
assistance and promotional efforts. However, these efforts should
not be institutionalized as long-term programs. It should be empha-
sized that this view applies to the present auditing situation as
understood by environmental group members. If the role of auditing
were to change, or auditing were to be advocated as a major policy
initiative, then environmental group members might see more of a need
for "auditing the audit."
-	"This is going to take several years to develop and I
don't think, anyone sitting in EPA orchestrating it is
how it is going to happen. The free enterprise system
will make it happen if it's a good idea with a little
incentive from the government."
-	"I want, to see this whole thing evolve slowly. EPA
shouldn't be in the business of compelling audits and
selecting auditors and making audit rules. From the slow
evolution standards and good auditors will rise to the top."
-	"I'd rather see somebody make a buck out of it rather
than have the EPA develop an audit staff and send a
bunch of flying tigers out there who don't know anyl-hinn
about the business that they are auditing."
-	"I think the EPA should have some technical involvement
rather than just letting the company go out on its own."
-	"EPA should be prepared to encourage auditing - maybe
staff people who for a fee advise companies in their
audit. The EPA should tell companies that their
experience shows that companies doing audits have fewer
compliance problems and fewer judgments against them."
-	"I'm not sure where there is a role for the EPA. The
worst thing is for them running in to help."
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12. The Future
With the exception of environmental group respondents, who do
not see auditing, or at least internal audits, as a major force,
there seems considerable optimism about the future. Although most
respondents believe it is premature to develop a specific scenario
for auditing, most foresee definite benefits emerging. The most
often mentioned were the development of professional expertise in
conjunction with the auditor role (whether internal or external to
the facility, or external to the company), better data systems, and
less need for outside monitoring to determine compliance.
-	"Auditing would promote understanding of requirements.
Also more people who are experts in the field would come
into being. Maybe insurance rates may be affected. And
it may start to meet the victim comp. issue."
-	"I can see our saying that EPA needs less inspections
because third party audits are working. It would appear
that more companies are in compliance because of the
audit function. This would require a long time, overtime,
inspection of audits. And if compliance were better, we
would not need as many inspections."
-	"The direction will probably be to much better utilization
of reporting through remote entry of data. Somebody will
be doing the auditing whether it's the company or us
[regulators]. There will be more and more emphasis on
good monitoring."
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DISCUSSION
This research indicates that conditions are fundamentally
favorable for implementation and diffusion of environmental auditing.
However, the course of this future development is unclear. Based on
respondents' perceptions as of June 1983 the following key considera-
tions will likely affect future development:
Environmental auditing connotes different meanings to
different segments of the environmental community. These
meanings range from a label for programs instituted by
industry in order to monitor plant operations, to broader-
scale assessments of true environmental impact.
 If large companies are any indication, strong auditing programs
are now in place. They see themselves as going beyond current
regulations and are very interested in sharing the outline
of their programs and procedures with other firms and EPA.
 Top management may or may not initiate the auditing program,
but corporate environmental staff perceive their function as
top-down reviewing and educating of plant managers and pro-
duction people. EPA program staff see top management as
being motivated by bottom-up risk minimization. State regu-
lators perceive differences of perspective between management
and the line, and along with environmentalists, see auditing
as a method of getting top management involved.
0 Precisely what information and data should be collected during
an audit is open to debate. Industry appears to review data
collected on site to make sure that procedures for compliance
are in place and being followed at the plant level. EPA
program staff and environmental group members envisage more
of a deluxe, in-depth audit where the auditors may also be
primary data collectors.
0 Each of the groups sees external audits and disclosure issues
from a different perspective, with industry opposed to exter-
nal audits or certification of audit programs; states wanting
at present to focus on internal audits with the eventual
possibility of external audits and increased disclosure; and
environmental group members viewing disclosure of audit
findings as an essential tool for compliance if auditing is
to go beyond being merely an internal corporate matter.
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These considerations imply a policy question that is more
long-run than short-run. In the short-run, the EPA's course of
establishing a clearinghouse role and engaging in low-key promotional
activities certainly fits a perceived need. There is basic
agreement that such a role is and will remain appropriate for the
EPA.
Longer-run policy may have to confront the issue of whether
auditing is to remain a largely internal private-sector function.
There is cautious sentiment on the part of some regulators, but not
industry or environmental group members, that eventual future devel-
opment along the lines of the accounting model might be desirable.
The emergence of professionally certified auditors and clear audit
standards, if not of external auditors per se, would be the objective
of such a policy, though it inevitably implies some more formal
method of taking the results of such "professionalized" audits "into
account." The problems of reliability and disclosure of audit find-
ings, the resistance this accounting model would entail, and whether
any additional benefits would be worth the effort, would have to be
explicitly addressed. One policy question is therefore whether or
not to encourage such developments; or whether, in light of the
length of time required for evolution of financial auditors and
audit standards, the wide acceptance of EPA's clearinghouse role,
and the accelerating spread of internal auditing, the issue may
eventually resolve itself without explicit policy decisions by EPA
or other participants.
( END)
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