What You Don’t Know Can Hurt You
An Environmental Audit is a Good Way to Minimize Risks and Save Money
By: Raymond Kane P.E. CPEA
The mere mention of the word “audit” conjures up feelings of anxiety and concern that bad things are about to happen. Who looks forward to an IRS audit and what company doesn’t worry that their annual “financial audits” will turn up some improper accounting that will cause problems for management?
Yes audits in general are designed to look for things that are not being done properly but they can also have significant positive impacts and benefits for companies of any type and size in all business sectors.
Most industrial and manufacturing companies and commercial entities face an array of environmental, health and safety (EHS) regulations enforced by the EPA or OSHA and their counterparts in state regulatory agencies. Depending on the business sector there may be only a few regulations that apply or there may be many more all of which require a business entity to comply with a myriad of pollution control procedures, worker safety programs, recordkeeping, reporting and management controls. Management may be ignorant of these legal requirements but “ignorance is no defense” an often stated legal argument by the courts that can result in significant fines and penalties and worse criminal sanctions for violation of the EHS laws and regulations.
An EHS audit is defined as an independent, objective and periodic assessment of a company’s operations, practices and management controls to determine its compliance with applicable EHS laws and regulations. The three major benefits of having an audit conducted periodically are described as follows:
First what you don’t know can hurt you. It is better for a company to find out themselves through an internal company EHS audit that they are not in compliance rather than the EPA, OSHA or a state regulatory agency identifying violations of EHS laws. EPA is authorized by law to assess fines in the rage of $25,000 per day for violations of environmental regulations. OSHA likewise has statutory authority to levy thousands of dollars in penalties for violation of worker safety and health regulations.
In addition to these civil penalties which totaled almost $100 million in 2009 for EHS regulatory violations, criminal sanctions are routinely brought against companies and individuals for the most severe violations of EHS laws. As reported by EPA criminal charges were brought against 170 individuals nation-wide in 2009. The total level of incarceration served by these individuals in 2009 was 76 years, an increase over the 57 years assessed in 2008. This included the prosecution of a cast iron pipe company in New Jersey, where four individuals were sentenced to a total of 140 months incarceration (and the company was fined over $8 million) for their criminal conduct - actions which were tied to worker deaths, injuries and enormous environmental pollution. In addition to the 76 years of aggregate jail time, defendants in these cases were sentenced to an additional 23 years in prison after being convicted for additional charges. These risks of fines, penalties and criminal prosecution are real and can be avoided by conducting periodic EHS audits.
The second major reason why an audit can benefit a company relates to public companies in particular. The linkage between a company stock price and its environmental performance and reputation has been shown to be increasingly of more concern to investors looking for shareholder value. Environmental Health & Safety report cards for public companies are now commonplace and are used by numerous equity rating agencies like the Dow Jones Sustainability Index (DJSI) to distinguish companies that have good environmental performance from those who don’t. Companies are now expected to monitor and measure their environmental performance. Conducting periodic EHS audits will serve that obligation well and keep it high on the list of the investment community.
“Going Green” is not just a feel good flavor of the month. Opinion polls clearly show that the general public is more aware and concerned than ever of environmental threats and given a choice will more than likely choose to buy their products and services from environmentally responsible companies.
The third and perhaps most overlooked benefit of conducting audits is the cost savings that can result from identifying improved operating procedures during the audit. A thorough and properly executed EHS audit will evaluate the current practices of a company or facility and identify more efficient ways of doing things. A prime example is an audit conducted for a small manufacturing company in Pennsylvania that discovered that the definition of what constituted a “hazardous waste” was not fully understood by facility staff. The facility was collecting hazardous waste and paying for its disposal at a hazardous waste incinerator at a cost of $5.50 per pound. In reality much of the solid waste generated was not by definition a hazardous waste at all and could have been disposed of at a much lower cost of $.65 per pound. Once corrected, this improved waste collection operating practice saved the company over $20,000 annually. The cost of the audit which in this case was $7,500 was more than covered by this annual cost savings to the company which went right to the bottom line.
In summary EHS audits are a wise investment for companies in any business sector to undertake. Better management of environmental and safety risks and exposures and reduction or elimination of regulatory fines and penalties will in most cases result. Improving shareholder value and perception by the communities in which a company operates has been shown to be a benefit to public companies who conduct EHS audits. Finally realizing annual cost savings from improved and more efficient environmental and safety operating practices can be a benefit to any company of any size that conducts periodic EHS audits.
Compliance Management International (www.complianceplace.com) is an environmental and engineering consulting firm specializing environmental, health and safety compliance. EHS audits can be designed to focus on the specific EHS exposures and risks of your company and should be conducted by trained and experienced audit professionals. Auditors should hold Certified Professional Environmental Auditor (CPEA) certification or similar credentials. Audits for average size businesses can be conducted in anywhere from 1-3 days. For more information on how EHS audits can be beneficial to your company contact Tom Gresko at 215-699-4800 x124 or firstname.lastname@example.org.
Author Raymond Kane is a consultant to CMI and has over 30 years experience in the EHS auditing field. He is a co-author of one of the first and leading texts “Environmental Health & Safety Audits, 9th edition and is a past Board member of the Auditing Roundtable and the EHS Auditor Certification Board, BEAC.