To protect human health and the environment, facilities are required to comply with laws addressing environmental impact. For this to occur, facility managers must accurately understand their role in environmental compliance at their facility, create solutions to compliance problems they find, and consistently keep records of these efforts. An important tool towards environmental compliance is the Environmental Compliance Audit.
An environmental compliance audit is an investigation of the compliance status of a facility and/or the extent of environmental liability. This process is a systematic, documented evaluation of a facility, focusing on current operating and administrative procedures and processes.
An environmental audit includes an examination of:
- business operations
- waste streams
- permit requirement compliance
- regulatory reporting and recordkeeping requirements
- chemical and hazardous material usage and handling
- discharges to air, land, or water
An audit of commercial properties usually focuses on compliance with EPA and OSHA (Occupational Safety and Health Administration) regulations. A lender or insurance provider may require, or an owner or manager may voluntarily initiate, an environmental audit to evaluate environmental health and safety issues, as well as potential contamination risks associated with current operations at a particular property.
Nonroutine audits represent only a snapshot of a facility’s operations. During a property transfer, a buyer might contract for an audit if the transaction involves acquiring and continuing operations similar to those of the previous owner. In this instance, there may be no mechanism included in the audit process for tracking identified deficiencies and implementing corrective actions.
Reasons for Performing Environmental Compliance Audits
Environmental compliance audits are used by private and governmental facilities to help confirm the effectiveness of EMSs (environmental management systems) and to identify compliance issues. Environmental auditing is a management tool you can use to assess and monitor your company’s internal performance and compliance with environmental regulations and standards. An audit can also be used to determine whether an existing environmental management system is effectively:
- maintaining compliance
- identifying deficiencies
- taking corrective actions
The Difference Between a Phase I ESA and an Environmental Compliance Audit
The terms Phase I ESA (environmental site assessment) and environmental compliance audit are often used interchangeably. However, they are two very different methods of environmental assessment. Phase I differs from an environmental audit just as internal review of a company’s accounting methods differs from an IRS (Internal Revenue Service) audit of tax records from a single year. The two processes differ in purpose and scope.
Prospective purchasers of real property typically require a Phase I ESA, while a current owner or investor in a business may be more apt to require an environmental compliance audit.
An environmental audit should be done during a property purchase prior to closing. This audit is performed to evaluate a facility’s current operational compliance with environmental regulations. It may indicate a potential for environmental contamination and health risks to employees. This type of audit may also identify compliance problems such as missing permits or health and safety violations that can result in significant fines or penalties from regulatory agencies.
The Scope of an Environmental Audit
The scope of an environmental audit depends on the nature of the facility being audited. A facility with few environmental aspects can be reviewed relatively quickly, while a large industrial facility may require a team of auditors to spend weeks on-site to develop a thorough understanding of the operations.
The audit sometimes begins with a questionnaire that must be filled out by the facility manager(s). This questionnaire helps to prepare the audit team for what will be encountered at the site. The site visit includes visual observations, interviews with employees, and a review of documents.
Using the Data Collected During an Environmental Audit
During an environmental audit, officials collect pertinent environmental performance data and then compare the data to defined performance standards. Assembling and managing the data supports all subsequent environmental management decision making. Collected data may include:
- hazardous material inventories
- waste generation data
- point and nonpoint discharges to air, water, and soils
- applicable regulations
- training records and requirements
- health and safety requirements
- emergency preparedness
- numerous other facets of environmental management
Collected audit data are assessed against performance standards (these can be internal, regulatory, or third-party standards) to assess current environmental performance. This evaluation identifies areas of positive environmental performance and those environmental issues requiring:
- management attention
- corrective actions
- performance improvements
- plans for future needs
For a company embarking on an environmental auditing program, the result of the initial environmental audit will provide a baseline, or snapshot, view of a facility’s environmental compliance and risk management standing. This data can be used to move forward with an environmental compliance program, since management of these issues is a dynamic process.
An Environmental Management System (EMS)
An EMS is a system created by property and facility owners or managers that manages, maintains, and monitors environmental issues related to a facility or parcel of property. In recent years there has been a movement among some environmental managers to integrate the traditional environmental auditing program into an overall EMS. Several models for development of an EMS are currently in use.
Due diligence inquiries conducted during a prepurchase environmental assessment do not typically identify all issues of environmental relevance at a property. These issues must be addressed in an EMS. Additional issues may include:
- the status of tenant environmental compliance
- regulation-driven notification requirements
- meeting new, upcoming requirements (such as for the disposal or recycling of fluorescent light tubes or light ballasts)
In addition to providing guidance on previously identified environmental issues, the EMS should also include a mechanism to incorporate newly discovered environmental concerns.
Frequency and Types of Environmental Audits
The type and frequency of environmental audits performed under an EMS usually depend on the risk tolerance of the owner and the characteristics of the facility. Properties containing asbestos or lead may require an O&M (operations and maintenance) program that includes occasional audits. For more serious environmental concerns (for example, old, unprotected USTs or damaged asbestos-containing materials), an abatement or response action may be warranted along with more thorough and frequent audits.
Identifying Environmental Risks Associated with Prospective Tenants
Because the cost of cleaning up real property that has been contaminated by hazardous substances can be very high, it is important to identify the environmental risks associated with prospective tenants before entering into a lease. Similar types of due diligence applied to new property acquisitions should be considered in new leases. Your due diligence review of prospective tenants should, at a minimum, include:
- the nature of the prospective tenant’s business operations, including the use of chemicals or hazardous materials and the types of waste generated
- the type of equipment used in the prospective tenant’s operations
- the prospective tenant’s attitude toward environmental compliance
- insurance and indemnification clauses
For prospective tenants that present potential risks, require tenants to do at least the following:
- maintain minimum environmental compliance requirements
- prepare a contingency plan for a spill or hazardous substance release
- allow the property manager to enter and conduct an environmental assessment if there is a perceived threat of environmental contamination
- notify the property manager immediately in the event of a tenant spill or environmental enforcement action against the tenant
- provide an annual certification that the tenant is in compliance with environmental laws and that no soil or groundwater contamination has occurred at the site as a result of the tenant’s activities
- provide a guarantee that the tenant will remediate any tenant-caused environmental spills to the satisfaction of the property manager
- indemnify the property owner from any tenant-caused environmental cleanup costs
Prior to the initiation or termination of the lease term, either the owner or the tenant can use a baseline environmental assessment of a leased premises to establish the environmental conditions at the leased premises. These assessments can also be used to establish whether the operations of a tenant caused or contributed to any contamination of the property during the lease term. Property owners may also be required to notify prospective tenants of the presence of certain hazardous substances before renting the property.
This article is excerpted from BOMI International’s International’s Clean Air and OSHA Compliance Reference Guide. TMore information regarding this is available by calling 1-800-235-2664, or by visiting www.bomi.org.