Performance & Environmental Auditing

What is environmental auditing?

Environmental auditing is essentially an environmental management tool for measuring the effects of certain activities on the environment against set criteria or standards. Depending on the types of standards and the focus of the audit, there are different types of environmental audit. Organizations of all kinds now recognize the importance of environmental matters and accept that their environmental performance will be scrutinised by a wide range of interested parties. Environmental auditing is used to

• investigate
• understand
• identify

These are used to help improve existing human activities, with the aim of reducing the adverse effects of these activities on the environment. An environmental auditor will study an organization's environmental effects in a systematic and documented manner and will produce an environmental audit report. There are many reasons for undertaking an environmental audit, which include issues such as environmental legislation and pressure from customers.

Definitions

The term 'audit' has its origins in the financial sector. Auditing, in general, is a methodical examination - involving analyses, tests, and confirmations - of procedures and practices whose goal is to verify whether they comply with legal requirements, internal policies and accepted practices.

The International Chamber of Commerce (ICC) produced a definition in 1989 which is along the same lines

There are other definitions available, although the above definition is still seen as the industry standard. The key concepts, which occur in all the definitions, are as follows.

• Verification: audits evaluate compliance to regulations or other set criteria.
• Systematic: audits are carried out in a planned and methodical manner.
• Periodic: audits are conducted to an established schedule.
• Objective: information gained from the audit is reported free of opinions.
• Documented: notes are taken during the audit and the findings recorded.
• Management tool: audits can be integrated into the management system (such as a quality management system or environmental management system).

Terminology

Environmental auditing should not be confused with environmental impact assessment (EIA). Both environmental auditing and EIA are environmental management tools, and both share some terminology, for example, 'impact', 'effect', and 'significant', but there are some important differences between the two.

Environmental impact assessment is an anticipatory tool, that is, it takes place before an action is carried out (ex ante). EIA therefore attempts to predict the impact on the environment of a future action, and to provide this information to those who make the decision on whether the project should be authorized. EIA is also a legally mandated tool for many projects in most countries.

Environmental auditing is carried out when a development is already in place, and is used to check on existing practices, assessing the environmental effects of current activities (ex post). Environmental auditing therefore provides a 'snap-shot' of looking at what is happening at that point in time in an organization.

The International Organization for Standardization (ISO) has produced a series of standards in the field of environmental auditing. These standards are basically intended to guide organiaations and auditors on the general principles common to the execution of environmental audits. These are addressed elsewhere in this module.

Environmental auditing means different things to different people. Environmental auditing is often used as a generic term covering a variety of management practices used to evaluate a company's environmental performance. Strictly, it refers to checking systems and procedures against standards or regulations, but it is often used to cover the gathering and evaluation of any data with environmental relevance - this should actually be termed an environmental review. The distinction between an environmental audit and an environmental review has become blurred, but the table in 2.1.1 should enable you to understand the differences between the two.

 

 

 

Irrespective of the process that is actually being undertaken, some organizations prefer not to use the term 'audit'. In some cases, therefore, an organization may call the procedure of measuring environmental performance against set criteria an environmental review, an environmental assessment, or another term used specifically for their own purposes (by now, you should be able to distinguish between these terms, and be able to determine which is which).

In addition, the term 'audit', coming from the financial sector, may suggest that financial audits (whose result typically is the Annual Report) and environmental audits are very similar. Some areas where they differ are highlighted in the table in 2.1.2.

 

 

 

Performance Audit

It refers to an independent examination of a program, function, operation or the management systems and procedures of a governmental or non-profit entity to assess whether the entity is achieving economy, efficiency and effectiveness in the employment of available resources.^[1] The examination is objective and systematic, generally using structured and professionally adopted methodologies.

In most countries, performance audits of governmental activities are carried out by the external audit bodies at federal or state level. Many of these audit bodies have established guides for conducting performance audits which explain how performance audits are planned, conducted and its results reported.

INTOSAI, the International Association of Supreme Audit Institutions, has published generally accepted principles of performance auditing in its implementation guidelines. In the United States, the standard for government performance audits is the Generally Accepted Government Auditing Standards (GAGAS), often referred to as the "yellow book", maintained by the federal Government Accountability Office (GAO). Similarly, the European Court of Auditors (ECA) has developed a "performance audit manual" for its audits of the sound financial management of the European Commission and the programmes funded through the EU budget.^[2]

Performance audits may also be conducted by internal auditors who are employees of the entity being audited. However, some national governments require agencies, departments and branches to periodically retain outside auditors to conduct them.

In the USA, all auditors who follow GAGAS standards are required to maintain independence, supervision, continuing professional education, and conduct the audit using a specific process designed to increase the quality of the audit and reduce the politicization of audit work. Although there are separate professional credentials and certifications for Financial Auditors, the persons that conduct Performance Audits in the USA are often Certified Public Accountants, Certified Internal Auditors, or have a broad background in public policy, business or public administration.

The scope of performance audits may include the detection of fraud, waste and abuse, although often these are not included in the scope. Prior to engaging in a performance audit, the auditor must have a scope and plan defined which will be used to guide the audit process.

Performance auditing differs from performance measurement, the latter being the responsibility of management of the entity. In addition, performance measurement may include a broad variety of activities that do not meet the rigour of an independent external assessment.