Self-Evaluative Environmental Audits

1. Self-Evaluative Environmental Audits Ethanol Industry Group April 1, 2010 Aurora, Nebraska

2. Overview • Changing Role of Self-Evaluative Audits • Compliance Audits versus Environmental Management Systems • Benefits of Compliance Audits and Management Systems

3. Overview . . . • Risks Associated with Audits and Systems • Protection for Self-Evaluative Audits • The Need for Federal Legislation

4. Changing Role of Self Evaluative Audits • Command-Control-Punish Regime • Audit - Defensive Mechanism • Compliance Audit as the Sole Component of the “System”

5. Influence of Multinational Enterprises • “Eco-Auditing” -- “How a company proactively evaluates the impacts of its processes and activities on its external ecology and how management responds to those impacts.” • Pro-Active Environmental Management • The Environmental Business Ethic

6. Environmental Management Systems • Accounting Audits before the Great Depression did not Exist • Modern Financial Management is Systematized • Systematic Approach to Environmental Management • Compliance Audit becomes One Component in the System

7. Compare and Contrast • Compliance Audits • Snapshot in Time of Your Compliance Status • Identifies Compliance Gaps • Identifies Areas for Improvement • Conducted at Regular Intervals • Written Report to Management

8. Compare and Contrast • Compliance Audits - EPA Definition • Top Management Support and Commitment • Function is Independent of Audited Activities • Adequate Team Staffing and Training • Explicit objectives, scope, frequency • Process that collects, analyzes, documents information

9. Compare and Contrast • Compliance Audits - EPA Definition • “Specific procedures to prepare candid, clear and appropriate written reports on audit findings, corrective actions and schedules for implementation.”

10. Compare and Contrast • Environmental Management Systems • “That facet of an organization’s overall management structure that addresses the immediate and long-term impact of the company’s products, services, and process on the environment.” • Order and Consistency through • Allocation of Resources • Assigning Responsibilities • Continually Evaluating and Improving

11. Highlighting ISO 14001 • Voluntary International Standard for Environmental Management Systems • Final Standard Promulgated in September 1996 • EMAS - Eco-Management and Audit Scheme -- July 1993 • EMAS Adopted as a Regulatory Measure by EU -- mandates continual improvement of Performance

12. Highlighting ISO 14001 • Main Components: • General Requirements • Environmental Policy • Planning the System • Implementation and Operation of the System • Checking and Corrective Action • Management Review

13. Highlighting ISO 14001- Checking and Correcting • “Establish and maintain documented procedures to monitor and measure, on a regular basis, the key characteristics of its operations and activities that can have a significant impact on the environment.”

14. Highlighting ISO 14001- Checking and Correcting • Must have a “documented procedure for periodically evaluating compliance with relevant environmental legislation and regulations.” • That is: Compliance Audit

15. Highlighting ISO 14001- Checking and Correcting • Must have a record-keeping system which includes “training records and the results of audits and reviews” • Records must be “legible, identifiable and traceable to the activity, product or service involved.”

16. Highlighting ISO 14000 Series • Twenty Documents - Six Subject Headings • Environmental Management Systems • Environmental Auditing • Environmental Performance Evaluation • Environmental Labeling • Life-Cycle Assessment • Environmental Aspects in Products Standards

17. Highlighting ISO 9001 • Voluntary International Standard for Quality Management Systems • Fully Embraced by International Automobile Manufacturers • Specific Standards for Purchasing and Control of Component Parts • Market Forces Drive Adoption of the Standard

18. Comparing ISO 14001 • Must establish operational controls and procedures which help assure objectives are being met • Establish and maintain “procedures related to the identifiable significant environmental aspects of the goods and services used by the organization and communicating relevant procedure and requirements to suppliers and contractors” • That is: control of vendors which means auditing them!

19. Potential Benefits of an EMS • Regulatory Relief • Assure Compliance • Qualify for 100% Waiver of Civil Penalties • Relief under Sentencing Guidelines • Less Regulatory Scrutiny

20. Potential Benefits of an EMS • Uniform, systematized approach • diverse facilities in different jurisdictions • facilitate growth and acquisitions • Ability to Compete in Domestic or International Markets

21. Potential Benefits of an EMS • General Benefits • credibility - conform to recognized standard • profits - customers who prefer “green” things • efficiency and savings from improved internal management • community and shareholder goodwill • high quality workforce • potential insurance benefits

22. Potential Legal Risks • Regular Periodic Documented Self-Evaluative Audit • Supply the Rope the Jury may use to Hang You • Industry or Normative Standards are being Created • Failure to adopt EMS may be deemed negligence • Failure to correct compliance gaps may be deemed negligence

23. Potential Legal Risks . . . • Third Parties and Employees • Regulatory Agencies

24. Nebraska’s Audit Privilege and Immunity Law • Concept is Not New - Analog in Medical Context • Rewards Responsible Behavior by • Granting an Evidentiary Privilege against use of Reports in Court • Providing immunity for prompt self-reporting and corrective action

25. Practical Tips on Use of the Audit Law • Obtain a “specific written directive” from management to review compliance • Always date and label report as a “Confidential Environmental Audit” • Label drafts and interim communications as “Confidential” • Audit must be voluntary or self-initiated • Include compliance audit as part of EMS audit

26. More Tips … the Privilege Part of the Law • Make good faith efforts at compliance within a reasonable amount of time • Don’t try to use the audit to hide information • Privilege may not apply in the case of • significant adverse impact - actual or likely • water contamination • Court makes these determinations

27. More Tips … Exclusions from Privilege • Required audit reports • Grants and financial assistance • Regulators obtain information on their own • Obtained from any independent source

28. More Tips … Privilege from Testimony • Audit team and reviewers cannot be compelled to testify • Express waiver of privilege only by person for whom audit is prepared

29. Tips on the Immunity Part of the Audit Law • Make prompt written disclosure of “possible violations” • Make disclosure within 60 days and before agency learns on its own • Only applies to problems discovered through self-audit • Be diligent in pursuing compliance and corrective action

30. More Tips … To Get Immunity • Be cooperative with NDEQ • Be able to demonstrate good faith efforts to understand and comply • Don’t be guilty of willful or knowing violations • Don’t have violations that result or likely result in significant environmental impact

31. More Tips … To Get Immunity • Immunity won’t apply to violations of consent orders, or other court or administrative orders • Agency makes all of the above determinations

32. More Tips … What You Get • Relief from Gravity Based Civil Penalties • No relief from Economic Based Civil Penalties • No relief from Criminal Plea Agreements

33. EPA Audit Policy • Not a Law or Regulations • Not Enforceable against the EPA • Substantially Different Requirements for Immunity • No Privilege on the Federal Level • EPA hostile toward state privileges

34. The Need for Federal Legislation • Federal law of privileges applies in federal court • State privileges may not be and often are not honored • This leads to a trap for those who rely on state law privileges

35. Conclusion • On balance, doing audits is better than not doing them • Self regulation leads to less scrutiny and greater freedom • Encourage Use of the audit privilege and immunity law • Encourage adoption of federal legislation