The benefits of conducting environmental audits can be far reaching, but so too can the commitment They can be instrumental in helping companies avoid heavy fines and keeping their officials out of jail. But conducting environmental audits is a time-consuming, costly venture. Experts at a National Stone Association course in April advised careful planning to avoid an ineffective program that could, at worst, generate evidence federal agencies could use against the company.

An environmental self audit is just what the name implies. It involves inspecting for, recording and correcting environmental violations on a company's site. By discovering and correcting its problems, a company can avoid penalties from agencies such the U.S. Environmental Protection Agency and the U.S. Justice Department.

Elements of an environmental self audit Al Moyer, president of Capstone Associates, said self auditing is only one element of a company's environmental program. Capstone specializes in environmental services for the mining and construction materials industries. An audit program will not work if there is not a financial and philosophical commitment to it from the company's top brass, he said.

One key to a successful audit program is that it be consistent and comparable over time and different sites, Moyer said. Making minor, consistent changes to a program is acceptable, but companies must avoid changes that would distort the audit findings.

To maintain consistency, Steve Edgerton, environmental manager of Cornerstone/Benchmark Materials, developed a 4,000-question, 142-page audit form his inspectors complete for each site during the audit.

The program must also be documented, Moyer said. Audit documents must call the attention of upper management to situations needing decisions. However, documentation is a double-edged sword and must be handled with care.

Howard Nye, general counsel and vice president of Cornerstone/Benchmark, said a company must establish a document destruction policy. He advises consulting a lawyer for this policy. Once an audit and any problems on the checklist are completed, it could be detrimental to keep potentially incriminating documents, he said.

These documents can be used as evidence against a company, and are vulnerable to being disclosed to regulatory agencies, environmental groups or the media by disgruntled employees. In general, a company gets in more trouble because of the documents it keeps than because of the documents it destroys, he said.

Moyer said audits must be conducted periodically and have timely follow up to problems uncovered.

One of the worst things is to discover a problem and do nothing about it, Edgerton said. Always keep tabs on the progress of corrective action plans.

Another key element to a self-audit program is objectivity. Human nature makes this more difficult than it seems, Moyer said. It is important to evaluate who will be conducting the audits and if they have a history of bad blood with anyone at operations they will be inspecting.

Edgerton said he increases the chance for objective auditing by having three-member teams conduct all the audits. They always take the plant manager along on the audit. This not only trains the plant manager in what to look for in the future and what actions will be expected, but also lets him participate in the deliberation that takes place during the audit. Edgerton advises that one team member be appointed leader and given the authority to make a final decision if an impasse is reached on whether or not a violation exists.

Why Audit? Reasons for conducting environmental self audits range from the altruistic to the practical.

"The main reason is, it's the right thing to do," Edgerton said. But beyond having a clear conscience, environmental audits will affect the bottom line. Benchmark began self audits after getting a last-minute surprise during an acquisition negotiation, he said. Not knowing about an environmental problem greatly reduced the value of a site it was selling.

Audits can be a way to justify capital expenditures within the company, Edgerton said. The audits also can be used as a management tool by helping managers understand the company's status regarding environmental compliance and subordinates' commitment to compliance.

Identifying and correcting environmental problems is a good public relations tool, a morale and pride booster and a way to increase worker safety, Edgerton said.

Federal agencies are cutting their budgets and consequently looking toward fines and penalties as a way to augment those shrinking budgets, Nye said. Federal fines for discharging into a creek can be as high as $25,000 per day per incident plus the cost of emergency response clean up, he said. In the past decade, environmental crimes changed from misdemeanors to felonies. Those convicted of an environmental crime today can expect to spend at least two years in prison and receive tens of thousands of dollars in fines, Nye said.

The EPA is willing to waive certain fines and penalties if a company turns itself in and corrects its violations. EPA policy encourages self audits and will take into account the honest and genuine efforts of regulated entities to avoid and promptly correct violations, Nye said. In addition, the Department of Justice views environmental audits as a mitigating factor and encourages companies to conduct self audits.

"It's a little late once the paper (notice of violation) comes down," Edgerton said.

Additionally, 21 states have audit and immunity policies on the books. About 75% of those states grant some type of civil immunity by eliminating some administrative or civil penalties and fines, Nye said. About 33% of the 21 grant some type of criminal immunity, and a few have reduced criminal penalties not qualifying for immunity.

Hit the ground walking The experts advise not to run before learning to walk when beginning an environmental self-audit program.

To lay the groundwork, Moyer advises a company evaluate the past, present and futureof its structure and business types. The company needs to establish goals such as which specific environmental regulations will be obeyed. The company also should have a narrow performance objective with measurable results, Moyer said.

"The scope of the audit does not have to encompass the universe; it can be narrow," Moyer said. It should cover federal regulations, but also can cover state and local regulations as well as corporate policies and objectives. The different objectives can be divided into smaller audits, he said.

One of the first steps is to identify the company's resources-personnel, capital, time and dedication. An audit plan must be tailored to meet the resources or it will be a waste of time and money, Moyer said. Moyer recommends that companies considering self audits:

* focus training on executives and managers, don't try to make everyone an environmental expert;

* walk around the facility rather than assuming what is going on;

* keep the audit simple, bigger and more complex is not better;

* evaluate the program regularly;

* keep it in perspective, the purpose is to make progress not to discover and resolve all the problems at once;

* talk with those inside and outside the company for advise; and

* maintain a good, but distant relationship with regulators.

If a company has multiple sites, it is best to start the program at the one with the least problems, Nye said. This gives the program a chance to get running without being overwhelmed with violations. It also makes it easier to accept a new program when employees and management see what is being done right as well as what is done wrong.

* EPA reserves the right to collect any economic benefits that may have been realized as a result of noncompliance, even where companies meet all other conditions of the policy. Economic benefit may be waived, however, where the agency determines that it is insignificant.

* The policy gives three examples of discovery that would not be voluntary, and therefore not eligible for penalty mitigation: 1) emissions violations detected through a required continuous emissions monitor, 2) violations of NPDES discharge limits found through prescribed monitoring and 3) violations discovered through a compliance audit required by the terms of a consent order or settlement agreement.

* The policy will not apply where corporate officials are consciously involved in or willfully blind to violations, or conceal or condone noncompliance.

* Disclosure of violation should be made within 10 days of discovery, and in writing to EPA. Where a statute or regulation requires reporting be made in less than 10 days, disclosure should be made within the time limit established by law. Where reporting within 10 days is not practical because the violation is complex and compliance cannot be determined within that period, EPA may accept later disclosures if the circumstances do not represent a serious threat and the regulated entity meets its burden of showing that the additional time was needed to determine compliance status.

* Understand the risks and benefits

* Comprehensive program design

* Commitment for resource allocation

* Training

* Audit reporting structure

* Action plan and closure

* Quality control