April 2018 — An environmental compliance audit (ECA) is needed whenever one of several situations occurs:
- Regulatory inspection, complaint, or report
- Significant change in building operation or supply chain activities
- An internal incident by owners or tenants
- Change in leadership and/or management
- The issuance of a new but related regulation to existing business methodologies
The ECA basically compares the specific regulations applicable to ongoing or proposed activities on the premises with the actual or potential environmental impact of those activities. Discrepancies will warrant immediate attention.
Audit activities, like ECAs, are commonly performed by outside consultants. The consultants may assist the property owner or manager in acquiring permits for operation. They may also assist in developing plans to help assure compliance with regulations. However, to ensure preparedness, the building owner or manager should directly perform audit activities on a regular ongoing basis, checking for regulatory requirements whenever there is any kind of change or incident on the premises. In some settings and operations, engaging a consultant to perform the routine audit activities may be preferable, but the responsibility remains with the owner and manager. The audit activities should be explicitly outlined in the compliance plans previously developed for the facility. Simply put, the audit activities are necessary to confirm that operations are in compliance with all applicable regulations.
Although in some ways similar to a Phase I Environmental Site Assessment (ESA), an environmental compliance audit incorporates specific differences with respect to the scope and purpose of an audit. An ECA focuses on the operational aspects of a facility or a company. It is meant to ensure that potential liability exposures are minimized or eliminated by ensuring that ongoing operations and activities are in compliance with environmental regulations. As necessary, the environmental compliance audit will recommend corrective actions to bring noncompliant actions or activities into compliance with appropriate regulations and procedures.
A Phase I ESA is typically initiated by a buyer as a part of property due diligence. It is usually requested or required when a financial transaction is occurring with respect to a property, such as a sale, a loan or refinancing of a loan, or other type of ownership transfer. An ECA, on the other hand, is initiated by the owner. It is done periodically to ensure proper ongoing operations, or perhaps in anticipation of a sale or lease, and specifies corrective actions as they occur. An ECA can ensure that the right steps for environmental stewardship are being taken by an organization, over and above compliance with the law. ECAs also ensure that there are no practices or conditions that might generate incidents or accidents and escalate to broader legal consequences. In this sense, audits are used to find problems before they become disasters, financial or otherwise.
ECAs may be conducted regularly during the lifetime of a building or sought during the period prior to sale in order to evaluate a facility’s current operational compliance with environmental regulations. ECAs identify non-compliance with environmental regulations and health risks to employees. They reveal compliance problems such as missing permits or health and safety violations with the potential to cause significant fines or penalties from regulatory agencies.
An ECA is a systematic, documented evaluation of a facility’s operations and activities, focusing on comparing procedures and processes to federal, state, and local environmental laws and regulations. EHS compliance issues and internal policies, practices, and procedures are evaluated. Chemical and hazardous material usage and handling, compliance with environmental permits, and a review of discharges to air, land, or water are some of the audited items.
An audit of commercial properties usually focuses on compliance with EPA, as opposed to OSHA, 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.
Environmental auditing programs have been used by private and governmental facilities for more than two decades to help confirm the effectiveness of environmental management systems and to identify problem areas. However, the audit process is being increasingly seen as an opportunity to integrate auditing into the broader organizational quality programs, such as self-assessment—a process that involves the active participation and interest of each and every employee.
An audit performed on a nonroutine basis represents only a snapshot in time of the facility’s operations. During a property transfer, a buyer might contract for an ECA if the transaction involves acquiring and continuing operations similar to those of the previous owner. In such an instance, all the buyer wants to know is that the seller has or has not complied with the appropriate regulations; the audit may not include a mechanism for tracking identified deficiencies and implementing corrective actions.
An ECA sometimes reveals serious environmental violations, such as leaks from underground storage tanks or disposal of asbestos-containing building materials at unpermitted landfills. To help owners avoid the consequences of such incidents of non-compliance, the EPA and some states have promulgated self-audit policies. These policies encourage owners and managers to conduct self-audits and correct environmental violations. The EPA Audit Policy safeguards human health and the environment by providing several major incentives for property owners and managers to voluntarily come into compliance with federal environmental laws and regulations.
The EPA and some states offer incentives to those owners who voluntarily disclose non-compliance. The incentives include significant penalty reductions, extended time to correct violations, and other considerations. Monetary penalties under the environmental laws generally have two components: an amount assessed on the basis of the severity or gravity of the violation, and the amount of economic benefit a violator received from failing to comply with the law. The penalty reduction is based on prompt disclosure, and the owner or manager must be acting in good faith and adopt a systematic approach to preventing recurring violations.
Even where the ECA discovers a criminal violation (for example, deliberate dumping of drums of hazardous chemicals into public waterways), the EPA or states may not recommend criminal prosecution if all of the following conditions are met:
- Systematic discovery of the violation through an environmental audit or a compliance management system
- Voluntary discovery
- Prompt disclosure
- Discovery and disclosure independent of government or third-party plaintiff
- Correction and remediation
- Prevention of recurrence
- No repeat violations
- Other violations excluded
Before disclosing any instance of non-compliance in the facility or its operations, building management may have a consultation with the EPA to discuss mutually acceptable disclosure details, compliance, and audit schedules. The owner or manager should review non-compliance issues with an environmental lawyer beforehand, as well. Depending on the type of tenants or activities or operations in a building, it may even be advisable to conduct ECAs through an environmental lawyer. This allows the owner or manager to invoke the attorney-client privilege. The attorney-client privilege prevents the disclosure of confidential information exchanged between an attorney and a client that relates to legal advice, unless waived by the client. Simply stated, the purpose of the privilege is to encourage full and frank communication between attorneys and their clients.
The attorney-client privilege does not provide an absolute guarantee of protection for environmental audit reports, but the courts are sensitive to claims of confidentiality made in situations where attorneys have requested environmental audit findings to assist them in advising their clients.
Most environmental compliance audit programs, however, are not performed through an environmental lawyer, but are sponsored by corporate headquarters as part of its overall quality management system audits and sustainability efforts.
This article is adapted from BOMI International’s Environmental Health and Safety Issues course, part of the RPA, FMA, and SMA designation programs. More information regarding this course or BOMI International’s new High-Performance Sustainable Buildings credential (BOMI-HP™) is available by calling 1-800-235-2664. Visit BOMI International’s website, www.bomi.org.