Environmental Auditing

International Chambers of Commerce (ICC) in its publication Environmental

Auditing (1989) defines environmental auditing as:

• A management tool comprising a systematic, documented periodic and

objective evaluation of how well environmental organization, management
and equipment are performing, with the aim of helping safeguard the
environment by:

(i) Facilitating management control of environmental practices and

(ii) Assessing compliance with company policies which would include

meeting regulatory requirements.

The European Commission in its proposed regulation on environmental

auditing also adopts the ICC definition of environmental audit.
The Environmental audit assesses the potential environmental effects
of a proposed facility.

The essential purpose of an environmental audit is the systematic

scrutiny of environmental performance throughout a company’s
existing operations.

At best, an audit is a comprehensive examination of management

systems and facilities

At worst, it is a superficial review.

 HISTORY OF ENVIRONMENTAL AUDITING

• In the early 1970s, a number of private industry managers recognized the

benefits of internal auditing and established company programs to conduct
these audits

• By the late 1970s and early 1980s, governments, consultants, and lawyers had
begun to recognize the benefits of well-designed audit programs

• Securities and Exchange Commission (SEC) that required three public

companies (U.S. Steel, Allied Chemical, and Occidental Petroleum) to perform
internal environmental audits to determine the nature and extent of the
companies’ environmental liabilities for presentation to stockholders in
corporate annual reports
• Federal regulations regarding hazardous materials and wastes, such as the
Resource Conservation and Recovery Act (RCRA) in 1976

• And the Comprehensive Environmental Response, Compensation, and

Liability Act (CERCLA) in 1980, highlighted the need for private sector
companies to initiate internal environmental auditing programs

• Many company environmental managers developed and implemented audit

programs as a means of avoiding costs and liabilities associated with non-
compliance with these new environmental requirements

• Supreme Court’s decision in Hancock v. Train, 426 U.S. 167 (1976) which
required that Federal agencies must comply with the law, President Carter
issued Executive Order (EO) 12088 for Federal Compliance with Pollution
Control Standards (1978)
 The EO was a landmark event because for the first time head of agencies
were responsible for environmental compliance, and environmental
compliance became a measure of agency performance

 EPA complied with this directive by issuing the Federal Facility Compliance
Strategy in 1984 and a revised version of the Strategy in 1988.

 These documents, commonly referred to as the Yellow Books, describe the

usefulness and importance of audits, stressing the benefits of developing a
proactive approach to achieving environmental compliance.

 The concept of environmental auditing in industrial units in India was

formally introduced in March 1992 with the overall objective minimizing
consumption of resources and promoting use of clean technologies in
industrial production to minimize generation of wastes
Objectives of Environmental Auditing

• The overall objective of environmental auditing is to help safeguard the

environment and minimize risks to human health. Clearly, auditing alone
will not achieve this goal (hence the use of the word help); it is a
management tool.

The key objectives of an environmental audit therefore are to:

• Determine how well the environmental management systems and
equipment are performing
• Verify compliance with the relevant national, local or other laws and
regulations
• Minimize human exposure to risks from environmental, health and safety
problems
 Scope of the Audit
As the prime objective of audits is to test the adequacy of existing management
systems, they fulfill a fundamentally different role from the monitoring of
environmental performance.

Audits can address one topic, or a whole range of issues.

The greater the scope of the audit, the greater will be the size of the audit team, the
time spent onsite and the depth of investigation.

Where international audits need to be carried out by a central team, there can be good
reasons for covering more than one area while onsite to minimize costs.

In addition, the scope of an audit can vary from simple compliance testing to a more
rigorous examination, depending on the perceived needs of the management.
• The technique is applied not only to operational environmental, health
and safety management, but increasingly also to product safety and
product quality management, and to areas such as loss prevention
• The chemical industry was the first to embrace the environmental audit
concept in the 1970s.

• Regulations became more complex

• Non-compliance costs increased and EPA stressed the importance of

conducting environmental audits to reduce compliance costs

• Environmental managers of several Federal agencies began to incorporate

audits as essential tools in their operations.

• Some of the recent national and international developments in the field of

environmental auditing include management audits, pollution prevention
opportunity assessments, auditing standards, and professional
registration.
 Property conveyance audits are selected as
environmental management tools than audits
assessing

“Green” practices (recycling and procurement of environmentally

preferable products) or “Total Risk” where the auditors assess unregulated
risks in addition to regulatory requirements.
 Management Audits
• Management audits are used to look at the strengths and weaknesses of facility
environmental management systems (EMSs).

• The procedures recommended in “Phase 3” of the EPA Protocol include an

assessment of
(1) Organizational structure
(2) Environmental commitment
(3) Formality of environmental programs
(4) Internal and external communication program
(5) Staff, resources, training and development
(6) Program evaluation, reporting and corrective action
(7) Environmental planning and risk management
(8) Environmental protection program
An essential step in establishing an audit programme is to decide the criteria against
which the audit will be conducted and to ensure that management throughout the
organization knows what these criteria are.

Typically criteria used for audits are:

 Company policies and procedures on environmental matters

 Applicable legislation and regulations
 Good environmental management practice.

Pre-audit steps

 The administrative issues associated with planning the audit

 Selecting the personnel for the audit team
 Preparing the audit protocol used by the organization
 Obtaining background information about the facility.
“Better environment for the cost effective long term benefit” – Principle of the management

Commitment: Effective environmental audit programs need strong support from top management
(conveyed throughout the organization) for the resources necessary to hire and train audit personnel

Communication and training: Everyone the organization should be aware of the purpose of the audit and
cooperate/ trained to achieve the goal

Personnel: Need to be independent from external and internal pressures and employ quality assurance
procedures to ensure accuracy and thoroughness. (Aware of their responsibilities)

Policy: Develop an environmental policy and the policy should lead to number of objectives and targets
that is documented.

Audit team: May be internal or external some times mixture of both based on the size and type of
organization

Composed of members with different skills.

Evaluate with clarity: Need to evaluate and determine the applicable criteria and standards and
clearly define those criteria and standards in their audit report

Communicate: Communicate well with the staffs of the organization and properly documented audit
reports with recommendations
Types of Environmental Audit:
The Environmental audit may be conducted for different purpose and hence
there are several types of environmental audits depending on the objective
and depth

Compliance Audit: Used to insure that the company is meeting all the regulations regarding
specific environmental practices or the implications on non-compliance

System Audits: Focuses on how the system are used internally to manage environmental risks
Property Audits: Transactions of property transfer and risks involved in them

Treatment, Storage and Disposal Facility Audits: LCA for Hazardous materials
Preventive Measure Audits: How and what steps can be taken to reduce the amount of risk

Appraisals on Production Processes: Ensures the product specifications and standards as per
Govt. Regulations and as per internal safety standards
 Financial

Compliance

Performance

Planning

Executing

Reporting
Waste Water Air Biological
Diversity
 ENVIRONMENTAL AUDITING
Regularity Audit
1) Financial Audit

Cost from Environmental Policies and obligations-Pollution, abatement cost,

cost of decontamination of land, cost of decontamination of water etc.

2) Compliance Audit: From environment to sustainable development

Performance Audit: 3 Es concept – Economy, Efficiency and Effectiveness

Environmental Auditing is the 4th E

2 more EEs are the specialty of performance audit—Ethics & Equity

 Environmental cost included in other cost of operation

 Audit to probe Environmental issues and ensure correctness of

Environmental cost, Liabilities, Assets.
 Audit to ensure disclosure of Environment liabilities, non compliance of
obligations and penalty etc
 Concept of upfront cost, back end cost
 Cost incurred for making environmentally clean atmosphere before
commencing the operations– upfront cost
 Such cost if incurred would be treated as environmental cost to commence
the business
 Decontamination of the land for a new business, cleaning of plants and
machinery etc are upfront costs
 Contd…
 Cost to be considered for making the venture environmentally clean before
the business is handed over to others is backend cost
 Cost incurred to clean the rigs of oil companies and the ships of shipping
companies before it is used for other purposes after it was used to handle
hazardous substances etc are backend costs.
 Environmental liabilities include the liabilities arising out of fees and
penalties levied by regulators
 Other liabilities as result of non conforming of rules and regulations imposed
by the Govt/regulators etc.
 Liabilities for rehabilitation of displaced persons form a project site

 Liabilities for cleaning of environment for fresh air, fresh water and land etc.
 Compliance Audit
 Government Policies and Directives
 Direction setting / Intentions

 Legal Tools
 Domestic legislation, regulations, permits, licences, control orders
 Used to implement global treaties and to address national issues
 Can be at many levels - national, state, local

 Can be used to control pollution, protect parks and species, use of

pesticides, manufacturing of chemicals, trade, waste disposal and more!
 Economic / Financial Tools
 Taxes, subsidies, loans, user charges and fees
 Compliance audit (Contd.)
 Adequacy of monitoring of provisions of law by law enforcing agencies –
CPCB/SPCBs

 Ensure adequacy of information/ data on environmental issues to be

catered by the enforcing authorities.

 Audit the activities of regulating authorities in respect of governmental/

non-governmental agencies carrying out environmental protection work.
Procedure:
A systematic, periodic and objective approach to investigate business operations from conception to grave.
It starts with the analysis of the construction of plant, purchasing of building materials and various
possible alternatives, processing, recycling, control waste, storage, distribution, use, repair / recycling and
final disposal of the end effluents.

 A series of questions (i.e. questionnaires & checklists) of the type outlined above all stages of

the enterprise and its processes are prepared.

 Evidence may be collected through inquiry (e.g., asking a plant operator what he or she would

do if there were a major chemical spill), observation (e.g., watching specific activities and

operations in progress) and testing (checking records to confirm compliance with regulations).

 The audit team integrates and evaluates the findings of the individual team members.

 The recorded results will be presented as a report with highlighting the good and bad points

(Strength and Weakness) that need attention.

 Future audits will be conducted based on the above baseline data.

• The team may also evaluate the effectiveness of the system in place to manage
compliance and asses technical accrual of the amount of liabilities and costs for the
environmental damages and properly disclosing these cost to the public and
investors

Post-audit steps

• Prepare a draft report, which is reviewed by the plant management to confirm its
accuracy. Distributed to senior management as per the requirements.

• Develop an action plan to address the deficiencies.

• Some companies ask for recommendations for corrective action to be included in the
formal audit report.

• Other companies require the audit report to state the facts and the deficiencies, with
no reference to how they should be corrected.

• It is then the responsibility of the plant management to devise the means of

remedying the failings.
Benefits of Environmental Auditing

If environmental auditing is implemented in a constructive way there are many benefits to

be derived from the process. The auditing approach described in this paper will help to:
• Safeguard the environment
• Verify compliance with local and national laws
• Indicate current or potential future problems that need to be addressed
• Assess training programmes and provide data to assist in training
• Enable companies to build on good environmental performance, give credit where
appropriate and highlight deficiencies
• Identify potential cost savings, such as from waste minimization
• Assist the exchange and comparison of information between different plants or subsidiary
companies
• Demonstrate company commitment to environmental protection to employees, the public
and the authorities
 ISO 14000
• ISO 14000 series emerged as a result of Uruguay round of the GATT
negotiations and Rio Summit on the Environment held in 1992.

• It is a comprehensive series of standards designed to cover the whole area

of Environmental issues for organizations in the global market

• The standards apply to all types and sizes of organizations and are
designed to encompass diverse geographical, cultural and social
conditions
• For ISO 14001, committing to continual improvement and compliance
with applicable legislation and regulations.
• ISO 14010: General Principles of Environmental Auditing

• ISO 14011: Audit Procedures – Part – I: Auditing EMS

• ISO 14012 : Qualification Criteria for Environmental Auditors

• ISO 14013/15 : Audit Programs, Reviews and Assessments

• ISO 14024: Environmental Labeling – Practitioner Programs – Guiding

Principles, Practices and Certification Procedures of Multiple Criteria
Programs
• ISO 14031/32: Guidelines on Environmental Performance Evaluation

• ISO 14040/43: Life Cycle Assessment General Principles and Practices