After reading this article you will learn about:- 1. Introduction to Effective Environmental Auditing 2. Designing and Implementing Audit Programmes 3. Management Commitment 3. Reporting of Audit Findings and Audit Follow-Up 4. Future Trends.
Introduction to Effective Environmental Auditing:
Environmental Auditing is a feature of good environmental management practice throughout much of the petroleum industry. Indeed, the petroleum industry, along with the chemical industry, was at the vanguard of environmental auditing both in Europe and the United States of America (USA). For example, environmental auditing began in the early 1970s, within the British Petroleum Company pic.
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According to S. J. Baverstock, some milestones in the development of environmental auditing follow:
1960s:
Environmental auditing is first introduced.
1967:
The first of the big oil spills: The Torrey Cannon sheds its load of the British south coast.
1976:
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Seveso toxic cloud release.
1978:
Oil from the Amoco Cadiz soils the French coastline.
1984:
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A factory explosion causing the release of toxic methyl isocyanate causes death and severe injury to thousands of local people in Bhopal.
1986:
The US EPA publish their environmental auditing policy.
1989:
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The Exxon Valdez runs a ground in Prince William Sound, Alaska.
1988:
The International Chamber of Commerce (ICC) publishes its booklet on Environmental Auditing.
1990:
UNEP publishes their technical report on Environmental Auditing.
1992:
British Standards Institute publishes its first version of BS 7750 “Specification for Environmental Management Systems”.
1992:
The Environmental Auditors Registration Association is established in the UK.
1993:
The European Council agree EEC Regulation No. 1836/93 of 29 June 1993 allowing voluntary participation by companies in the industrial sector in a Community Eco-management and audit scheme.
The advent of British Standard BS7750 ‘Specification for Environmental Management Systems’ 7750, and other similar national standards, the EC Eco- Management and Audit Regulation (EMAR), and current ISO activities will ensure considerable attention to environmental auditing in the context of environmental management over the years to come.
It is perhaps surprising to see this increase in interest during times of economic recession, particularly as environmental auditing has often been considered “a cost without benefit”. A study of US companies found that 76% of the ‘downsized’ companies studied, had their environmental auditing budget increased over the ‘downsizing’ period.
While the trend will be to increase auditing efforts, the challenge will be to maximise the value of those audit programmes, particularly during a time of recession in the oil industry. Audits and audit programmes can be somewhat ad-hoc, even in some petroleum companies that have been carrying out audits for many years.
The audit programme may be based upon very loose objectives and the actual level of environmental auditing effort may vary considerably between different parts of the organisation.
The overall impression may not be that of a coherent and focused EA programme. Some suggested means of achieving cost effective audit programmes are outlined in the following sections (According to Baverstock).
Designing and Implementing Audit Programmes:
In larger petroleum companies managing a large number of sites, it is preferable to appoint an audit programme manager who does not carry out audits but is responsible for providing a focused and cost effective audit programme.
A level of independence from the auditing activity itself will help to ensure the credibility of the scheme (both externally and internally), ensure a focus on management needs, and avoid conflicts of interest.
Management Commitment:
To ensure the success of an audit or audit programme, it is extremely important to gain the support and “buy-in’ of senior management and commitment in advance to following up the audit findings.
Without this level of support, the audit can be conducted in almost a ‘vacuum’, with the audit process and team lacking credibility and authority. There is also the danger that the audit findings will not be acted upon which, at best, could result in poor progress but, at worst, could result in personal or company liability.
“Environmental auditing should be driven from the top.
Commitment of top management is essential”
To gain management commitment, the audit process should be viewed in its overall management context. The ICC definition of environmental auditing expresses this thinking.
‘A management tool comprising a systematic documented, periodic and objective evaluation of how well environmental organisation, management and equipment are performing with the aim of safeguarding the environment by:
(1) Facilitating management control of environmental practices; and
(2) Assessing compliance with company policies, which would include meeting regulatory requirements.
Awareness of management concerns and motivation is important in gaining support In persuading management, it may be useful to explain the consequences of not having an effective audit programme, and legal advice may help to support these arguments for establishing an effective programme.
Concerns about the potential liability implications of the content of audit reports should be balanced against the legal benefits that will be achieved through the implementation of an effective environmental audit programme that is clearly driven by senior management. Organisations that have already implemented audit programmes cite a number of motivations.
These are typically:
(i) Lower or middle management initiatives to improve the company’s existing environmental management activities and to keep up with what other companies are doing;
(ii) A desire, often at board or CEO level, to obtain assurance that the company is adequately managing its environmental responsibilities;
(iii) To help facility managers improve their environmental performance, e.g., assistance in understanding and interpreting regulatory requirements;
(iv) The result of an environmental problem or incident, or in response to a desire to anticipate and avoid potential problems.
Setting the Audit Objectives:
The following factors should be considered when establishing audit objectives:
(a) Organisational size
(b) Practical constraints
(c) Management concerns and motivation
(d) Company culture
(e) Management philosophy, and
(f) Information needs.
The objectives of the audit should be established during the earliest stages of planning the audit programme.
Typical information needs include:
(i) Areas where improvement is needed;
(ii) Liabilities (past, present and future)–
(iii) Comparison with best practice;
(iv) Level of environmental performance achieved;
(v) Compliance with company requirements; and
(vi) Regulatory compliance.
Typically, the EA objectives will change over time. This allows the audit programme to be adapted to meet management’s evolving needs and also progress made in improving standards of performance.
A tiered audit programme is often desirable which begins with the identification of problems (including regulatory non-compliances) and then progresses to examine specific issues or the effectiveness of environmental management systems.
This type of progression is very typical. When environmental audits are first introduced to a site, the audits tend to concentrate on the identification of problems.
However, subsequent audits increase in sophistication moving towards verification of compliance with regulations and then the effectiveness of management systems, evolving from finding problems to confirming the absence of problems as the auditee’s performance improves.
With the advent of the BS 7750 and EMAR, there is a greater emphasis on the auditing of environmental management systems and this may result in a departure from the more traditional evolution of environmental auditing. Ideally, if the objective is to measure environmental performance, the audit should concentrate on both management systems and the actual performance that is a result of that system.
In practice, it is often much more difficult to demonstrate environmental performance than to demonstrate the effectiveness of the management system. This may result in the temptation to concentrate on the management system rather than actual performance.
The focus must be on establishing the root cause of problems, e.g., why was the drum not labelled, not simply that the drum was unlabelled. This will necessitate further concentration on management systems.
Establishing the Scope of the Audit Programme:
An outline of some of the methods for establishing the audit scope follows. In all cases, the most appropriate methods will be determined by the audit programme objectives.
Organisational Scope:
In a larger company there are many ways in which to divide a company and its operations into manageable units.
Frequently, the divisions within a company are based upon the one or a combination of the following:
a. Business activity {e.g., refining, distribution, exploration) and
b. National or regional boundaries.
It may be appropriate for the audit programme to fit these company administrative units, but equally, it may be more appropriate to establish a programme which cuts across these traditional boundaries.
Alternatives might include audit programmes designed to target:
(i) Product lines
(ii) Operational activity, e.g., purchasing
(iii) Sites of higher environmental risk, e.g., older facilities or sites located in areas of particular ecological sensitivity
(iv) Specific issues, e.g., wastes management.
Cutting across traditional organisation boundaries can be very helpful in assisting the transfer of ideas and experience, this may also be the case if an experienced consultant is on the audit team.
Subjects Covered:
The scope should also include consideration of the subjects to be covered.
A good EA programme might include a combination of different types of audit such as those listed below:
(i) Technical Audits, e.g.:
a. —Waste
b. —Energy
c. —Rain Forests
d. —Wetlands
(ii) Due Diligence Audits:
a. Acquisition —Divestment
(iii) Management Audits
(iv) Compliance Audits
In each of these cases, it will be necessary to determine the exact subjects considered as part of the audit. Environmental audits within the oil industry often overlap significantly with health, safety and even security audits.
Site/Activity Selection:
Selecting the site/activity to be audited may be achieved by targeting sites/activities using:
(a) Risk criteria;
(b) Structured sampling; or
(c) Random sampling.
For small sites (e.g., petroleum retail sites), it is often impractical to send an audit team to examine individual sites and often important aspects of the management of those sites extend beyond the site boundary. One strategy is to group sites into sensible auditable units, usually organisational demarcations.
In the case of retail sites, the regional coordination centre may be audited along with a sample of individual retail sites chosen using appropriate selection criteria as outlined above.
Many companies have established standard audit frequencies across their operations, e.g., an audit every three years for offshore platforms or refineries.
While this system is simple to administer, it can be very inefficient particularly, if the sites pose significantly different levels of risk to the environment, either through design or location. The need for frequency re-audits can be reduced significantly, if other forms of assurance are established and maintained.
Other assurance techniques which can complement the audit programme include performance measures such as:
1. Reporting of key environmental performance information/indicators; and
2. Inspections by site and non-site management.
These other forms of assurance are preferred to auditing where the aim is to monitor performance on a day-to-day basis. The value of auditing comes from the independent and through examination of an activity, but because audits can only be carried out on an infrequent basis, they should not be the only form of assurance within a company.
A number of petroleum companies have published corporate environmental reports which include substantial amounts of performance data including quantified emissions data. These reports are often the culmination of comprehensive data reporting systems within the companies and have had far reaching effects in that they provide key performance information to line management.
Integrating environmental auditing with other types of audit can increase the frequency of EAs at particular sites within an organisation. Larger oil companies often integrate Health, Safety, EAs and many internal audit teams are including significant environmental elements in their audits.
Some companies have also integrated security with these integrated audits, particularly where security issues may have health, safety and environmental implications, e.g., product theft or terrorist damage to pipelines. It is expected that environmental management systems and quality management systems auditing will be combined in many companies in the future.
Multidisciplinary audits have the advantage of reducing the management time taken up by repeat audits which ask similar organisational questions. This can be particularly useful for larger sites, such as refineries, which may be subject to arrange of audits from within the company in addition to those required by outside agencies such as fire-fighting authorities and insurance companies.
The findings from a multidisciplinary audit may also help management to weigh the various issues in terms of their significance and the need for action.
A multidisciplinary approach may present additional challenges as there may be conflicting views on what should be done depending upon the background of the individual auditors. For example, the steps taken to address the fire risk presented by a product spillage may have severe environmental consequences. A strong audit team leader will help to resolve these potential conflicts.
In addition, multidisciplinary auditing may cause improvements in the various auditing disciplines due to the cross-fertilization of ideas and good practice between the various disciplines. Despite the benefits of multidisciplinary audits, there can be an apparent lack of focus.
Many believe that there are significant advantages to ‘spotlighting’ the environment in dedicated audits, particularly early-on initiatives to improve environmental performance.
There is a balance to be struck between auditing too little and too frequently. If audits are conducted too frequently, there may not be sufficient time for the implementation of actions resulting from the previous audit.
Methods for determining the audit frequency at a particular site include:
(a) Populations segregated into risk categories each with its own return frequency.
(b) Random selection of sites.
(c) Defined audit frequency {e.g., all sites every two years).
(d) Key subjects reviewed annually, other subjects less often.
(e) Risk based sampling (e.g., allocate the audits in a given year by risk 60% high risk, 30% medium risk and 10% low risk.
It is expected that in the future the audit frequency for a particular site/activity will increasingly be dependent upon risk criteria. Advances in the quantification of environmental risk may help to establish more efficient audit frequencies and targeting of sites.
However, sites or activities that are known to pose a significant threat to the environment are often managed well, it is the chronic and accumulative pollution problems which are often overlooked and may have very serious implications (including financial implications) in the longer term.
The use of the repeat audit as the only means of checking that the audit findings have been followed-up, should be discouraged. The use of audits in this manner is a very inefficient use of valuable audit resources.
It will put pressure on companies to re-audit much more frequently, but audit resources may not be sufficient to service these requirements. Better means of ensuring audit follow-up are given in section entitled ‘Audit Frequency’.
Compilation of the Audit Team:
The success of the audit depends upon getting the right team for the job. The team needs to be balanced in terms of breadth of knowledge needed for the plant or activities being audited. The audit objectives, scope and resources available will determine which individuals and how many auditors are selected for the audit team.
In smaller companies or in remote locations (e.g., remote oil exploration sites), an audit is often carried out by a single auditor. However, more usually, EAs are carried out by two to five people depending upon the size and complexity of the operation being audited.
A team approach is preferred because not only does it allow skills to be “mixed and matched”, but also allows for the exchange of ideas and views between auditors often leading to a more balanced and thorough audit. Large teams are often not justifiable financially and may be intimidating for persons being audited/interviewed.
Audit teams may include personnel from another site which is carrying out similar activities to that being audited, e.g., site staff from one refinery may be included in the audit team for another refinery.
This helps in facilitating the exchange of ideas and sharing of best practice between sites. The audit team may also include junior or trainee auditors who assist the lead auditor and other auditors while gaining auditing experience themselves.
Reporting of Audit Findings and Audit Follow-Up:
The report should be prepared according to the format requirements given by the persons commissioning the audit.
The report should clearly identify those findings which are based upon subjective opinion/professional judgement and those which are based upon direct observations. It is often helpful for the audit team to prioritize the audit recommendations particularly if there are a large number of recommendations.
Most if not all petroleum companies clearly see the follow-up of audit findings as the responsibility of line management, not of the auditor. However, auditors should be encouraged to do all they can to ensure and assist audit follow-up.
Obtaining and maintaining management commitment to the audit from the outset will greatly assist the acceptance of the audit findings and follow-up.
At the end of the audit, the auditor may assist the line management responsible for audit follow-up by helping to devise an action plan and encouraging the assignment of responsibility for:
(i) Implementing actions,
(ii) Monitoring progress and
(iii) Reporting progress.
Experience shows that in-house auditors are more likely to be involved in assisting follow-up than external (consultant) auditors. At the end of the day, it is a salutary observation that the environmental report is a “discoverable document” under law in many countries.
It is therefore essential that the audit is conducted in a thorough, objective and competent manner in accordance with the agreed audit objectives and scope. It is also extremely important that the audit findings are considered and acted upon accordingly. Records should be made which detail the audit follow-up process.
These records should include a note on the decisions made by management after consideration of each of the audit findings. They should report decisions not to take action or defer actions (giving reasons) and actions taken.
Some of the larger oil companies conduct hundreds of audits within a year and ensuring good follow-up of audit findings can present a major challenge if a clear methodology is not in place. Some US companies will not ‘sign-off an audit until all of the audit recommendations have been followed-up satisfactorily.
Future Trends:
Developments in environmental auditing continue to be pushed ahead by the more proactive companies including certain oil companies. Some of the key future trends have already been outlined previously, these include improvements to the efficiency of audit programmes and integration of the various audit disciplines.
Other likely future developments include:
(a) Increased openness;
(b) Increased external intervention;
(c) Quantification;
(d) Increased sophistication of the audit process; and
(e) Tightening of professional standards.
Increased Sophistication:
As the environmental auditing profession develops, we can expect the audit practice to increase in terms of sophistication, depth and rigour. The trend will be away from solely compliance auditing towards management systems. This will pose interesting challenges to existing environmental auditors who will need to make the transition from the purely technical to management consultancy.
Tightening of Professional Standards:
There is already much evidence to confirm the trend towards increased standardization in the environmental management systems and environmental auditing fields. There are the well-publicized ISO, EC and BSI initiatives and it is expected that a set of internationally accepted standards for environmental management and environmental auditing will emerge within the next 2-3 years.
Other developments, which also illustrate the trend toward tightening professional standards, include the Environmental Auditors Registration Association (EARA, a professional register for environmental auditors) and the UK Association of Environmental Consultancies initiative (involving peer review of internal consultant practice).
It is anticipated that the environmental auditing practice of today will emerge as a fully-fledged profession in the very near future. In this new phase of professional development, full time environmental auditors will be the norm. Auditing will be seen as an important training ground for high flyers, giving a unique perspective on the effectiveness of different management practices and systems.
Liability precedents (probably in the US or Europe) will significantly alter environmental auditors’ concept of their responsibilities. There will be an increased emphasis on basis auditing skills, with improvements in the quality and uptake of environmental auditor training.
There will be increased pressure for membership of professional associations. Auditor Certification/Registration will be the norm and interlinked with increased standardization in the environmental field.
We can also expect an international environmental auditing organisation to be established and the publication of an environmental auditing Journal. Increased External Intervention. The debate over whether the EC Eco-Management and Audit Regulation should be voluntary or mandatory revealed an interesting divergence of views between industry and the regulatory authorities.
The European Petroleum Industry Association (EUROPIA) and CONCAWE along with other industry groups were critical of the early proposal that audit findings should be published and the regulation was changed that it required the publication of an environmental statement.
While environmental auditing may remain voluntary for the majority of organisations, mandatory environmental auditing may be introduced for some specific industries or as a penalty measure, e.g., following a pollution incident Mandatory environmental auditing may still be linked to mandatory disclosure of environmental audit reports in some countries.
There will be increasing pressure (as evidenced by the environmental reporting field and EMS standards) for external verification of EMS and EA programmes. This will necessitate the use of external verifiers/certifiers. Smaller companies which do not have in-house environmental auditing expertise will also need to employ external consultants to implement their environmental audit programmes.
Quantification:
EA reports will increasingly include a scoring system which, despite some draw-backs, will allow further analysis and comparison of performance either overtime or between facilities. Increased quantification will need to be linked to training on the interpretation of the quantified data, particularly training of senior management who are likely to receive only summary data.
Increased Openness:
In line with the general trend towards greater openness, we can expect audit reports to become more candid. Legal advice will still be seen as an essential component of writing the environmental report, but it will become increasingly unacceptable to veil audit findings.
The focus will be on improving management through better communication of audit findings and liability protection will come from improved follow-up of these findings.