ENVIRONMENTAL AUDITING

The participants will understand the concept and issues of environmental Audit particularly with reference to the conduct of the process of audit. At the end of the session, participants will identify the component of environmental issues and steps/procedure to audit some of the environmental issues.

Environment is a complex of physical, chemical and biotic factors that act upon an organism or ecological community and ultimately determines its form and survival. It is the combination of different external physical conditions that affect and influence the growth, development and survival of organisms. Such external conditions include biotic components like plants, animal and other living beings, and abiotic components like soil, weather, water, sunlight etc.

The origin of environmental degradation can be traced from the relentless march towards industrialization, development and increasing urbanization. However, the environmental degradation is characterized by two fundamental principles:

i) Natural resources like air, water, etc are consumed faster than the nature can replenish them. It is because of increasing population

ii) Secondly, in most of the cases, once degradation or harm is caused, it becomes irreversible

Environmental degradation has adverse impact on water, land use, forests, biodiversity, and climate change, and atmosphere, marine & coastal areas.

Environment remained fundamental concern of the Citizens & governments since industrialization. Civil society, media and environmental groups also raised voice against the deteriorating environmental issues. However, the first convention to confront environmental issues occurred in 1972 in Stockholm at an event known as United Nations Conference on human environment. However, march towards relentless development continued till 1987 when for the first time in Ruthland report which was presented in the commission on Environment and development used the term “sustainable development”. Sustainable development is defined as meeting the needs of today without limiting the ability of future generations to meet their needs. The term implies integrating economic, social and environmental concerns into the decision making process. Now the Sustainable Development has been considered as the 7^th Millennium Development Goal which is being pursued for achievement.

There are three aspects of public management of the environment

i) Environment is to be protected initially

ii) There is need to prevent activities harming environment

iii) If harm is met, its adverse effects are to be eliminated

As a public management drive,

i) There is requirement to frame National Environment Policies

ii) Setting Standards and Norms

iii) Preventing harm to environment through enforcing licensing, inspection and penalties for violation

In this connection, the role of international, national and local communities and governments cannot be denied.

Environment Audit is a methodical examination of environmental information about an organization, a facility or a site, to verify whether or to what extent, they conform to specified audit criteria. The criteria may be based on local, regional or global environmental standards. In other words, it is a systematic process of obtaining and evaluating information about environmental aspects. The subject of environmental audit is unique as

i) It is a specialized subject requiring base level knowledge about environmental issues

ii) Understanding the entity or context

iii) Multiple players and actors

iv) Environment is globally important and environmental issues are regulated globally and have global and regional impacts.

Overview of the audit process is regarding the procedure/steps that are required to be followed; they are Strategic Planning, Planning, execution, reporting and follow up. The strategic planning covers longer period from 3 to 5 years. In Planning phase five steps are covered. The first step is to understand the business or context, second is to set audit objectives and scope, the third is to select lines of enquiry (key areas) and sub audit objectives. Fourth is to indentify audit criteria and fifth is to prepare detailed audit plans

In the execution phase audit evidence is gathered, documented and analyzed.

In reporting phase, preliminary audit conclusions are drawn, discussed audit findings with management and finally audit report is prepared.

Waste is a product or substance that can be discarded or parted with because it is either damaged beyond repair or can no longer be used for its intended purpose. In the Basel convention, waste is defined as substance or object which are disposed of or are intended to be disposed of or required to be disposed of by the provision of law.

Waste can be broadly categorized as non-hazardous, hazardous and radioactive. Non-hazardous waste is garbage/solid waste. Hazardous waste is characterized by the chemical and physical features in the waste material. It is toxic, ignitable, corrosive, and carcinogenic. Toxic; Substances and preparations which if they are inhaled or ingested or if they penetrate the skin may involve serious, acute or chronic health risks or even death. Ignitable: Flammable, liquid substances and preparations having a flash point equal to or greater than 21 degree centigrade and less than or equal to 55 degree centigrade. Corrosive: Substances and preparations which may destroy living tissues on contacts. Carcinogenic:Substances and preparations which if they are inhaled or ingested or if they penetrate the skin may induce cancer or increase its incidence.

Besides waste is categorized as biodegradable and non-biodegradable which refers to the origination from plant or animal or otherwise and further decomposition by living organisms etc.

There are six stages where the waste is passed through. This is called waste stream and generally can also be used as audit criteria for making the basis of comparison for analyzing the prevailing situation. These stages are prevention, generation, recycle/reuse/recover, transport/export and treatment/disposal. There are two areas that are contaminated sites and illegal dumping both of which are undesirable. The waste stream can be used for all types of waste. As waste disposal is expensive, illegal dumping and improper dumping is quite common.

In order to identify possible audit topics, we apply a four step approach;

In step 1 we will identify the environmental and health risk scenario in order to determine the areas that have the highest materiality and risk

In step 2 the various actors and their responsibilities should be identified according to national law and international agreement

In step 3 it is beneficial to analyze the waste stream, there should be policies and corresponding instruments devised to handle it.

The first three steps relate to strategic planning phase of the performance audit process.

In the final step, step 4 we will consider lines of inquiry and choose focus. This is the final step connects or leads us to identifying the audit objective and scope.

Waste represents a threat to the environment and human If not handled or disposed properly. We recognized that auditing is about financial risks. However, in environmental auditing, impacts or risks of waste on health and the environment are the prime concerns. The first step in planning the waste audits consists of creating risk scenarios by indentifying the main problem areas related to waste in the country and the risk they pose for public health and the environment. This will give a picture of the danger the waste entails. If there are serious problems at basic levels of waste handling, we can argue that this is of national importance and therefore possible for the SAI to address in order to raise consciousness and bring corrective measures. Good description of the problems related to waste might already exist and be available in documents created by a ministry of environment, ministry of health or other responsible departments or agencies or NGOs in the country. If no such description exists, it may be the responsibility of the SAI to point out this to relevant authority.

The seriousness of damage from waste relates both to people and environment. For people, it may be divided into two aspects; the number of people who may be affected and the severity of the harm they may suffer. When determining the seriousness of damage to the environment, reversibility is a key factor. If damage is irreversible, it is especially grave. Habitat is another important dimension for environmental damage. When considering risks, the acuteness of the damage is also essential. The acute threats need to be addressed first. When these are under control, it is equally important to prevent future acute situations. Acute, harmful illness after one exposure. Chronic takes time (ex: cigarette and cancer)

The inherent and / or potential danger of each type of waste could happen if the waste handling is inadequate. If non-hazardous waste is placed indiscriminately in dumps/landfills near water sources and flooding rivers, the risk of contamination of water will be high. If dumps/landfills are located far from water and people, the immediate risks for public health will be lower. If non-hazardous waste is burned in incinerators which have equipment for purifying the emissions, the risks of danger to health and the environment will be low. Hazardous waste needs to be handled in compliance with strict quality measures. The waste generators should have obligations for managing the waste. The transporting vehicle must be designed for this purpose. Storage should be safe.

Radioactive waste is potentially the most dangerous waste because it can kill all organisms and be long lived. In most countries it is handled by a small number of actors and restrictions are tight. Usually the systems relating to radioactive wastes are of high quality but small faults in the systems can have grave consequences. For all types of wastes, there is also a risk of criminal behaviors (illegal dumping threats). Auditors should consider likelihood that this may occur.

The second step is to create an overview of the organizational structure of the waste management. Most likely, there will be different systems for radioactive, hazardous, and non-hazardous waste. This overview should include the most important actors; Authorities at the national, regional and local levels, the waste generators and other actors. The organizational structure for waste management may vary considerably among different countries but most of the systems have certain functions that need to be fulfilled.

Most countries have a legislative body responsible for formulating environmental policies and enacting laws, international agreements provide directions for national legislative work. A number of important functions come under the responsibility of the Ministry or Secretary but these may often be carried out by subordinate agencies. Some countries have few and some have many.

Many countries have an authority responsible for controlling pollution and for inspecting and monitoring the environment. If such an agency does not exist, the SAI should indentify who is performing these functions. Depending on the type of waste, the authorities that administer or regulate waste be at the regional or provincial or state level or at the local or municipal level. All actors should be mapped out; even some of these actors may not come within the core of the SAI’s mandate to audit.

The most typical handlers should be identified without going into great detail. In a basic chart, the inclusion of waste generators, waste transporters, and waste operators is sufficient. All of these actors may be private and public.

The waste stream can be used to analyze or understand the actual situation in the country. For example;

i) What kinds of wastes are generated in the country?

ii) Is each type collected and handled properly?

iii) What kind of facilities are there to handle waste?

Secondly the waste stream also provides some audit criteria in the sense that it is the ideal way of managing waste. The auditor can ask the question:

How does my country compare to the ideal?

The fourth step is regarding considering the line of enquiries and focus is to be done on the basis of risk assessment.  To begin with, what questions to be considered for the line of inquiries? Four groups shall be framed and five questions to each line of inquiry shall be framed about waste by each group.

Audit objective is a precise statement of what audit intends to accomplish. It provides a clear direction to audit process. It can further be broken down to detailed objectives. It helps to define lines of inquiry.

Example of audit objective for the topic of Medical Waste Management can be given as under; “Did hospitals adequately implement the government,s rules on management of medical waste”?

Audit scope sets the boundaries of an audit. It indicates what audit intends to cover and what it will not cover. It includes periods, entities/agencies to be covered. In other words, it establishes optimal balance between spread and depth of audit.

An example of audit scope for the topic medical waste management may pertain to coverage of the period, entities and description of what it will not cover.

Lines of enquiries are with reference to a theme or significant component of the whole stream of discussion. Waste management cycle may consist of generation, storage, transportation and treatment of waste. The selected lines of enquiry in an audit cycle could be storage and treatment aspects.

An audit criterion is reasonable and attainable standards of performance. It provides link between audit objective and audit test programmes/ evidence collection. Criteria for storage of medical waste can be described as

i) Waste is to be collected daily from generation sites for storage

ii) Waste is to be stored in specified containers before transfer to treatment sites

iii) Different types of medical waste should be segregated during storage

iv) Waste handlers must wear gloves to void infection

Audit evidence against audit criteria as

i) Medical waste was collected once a week

ii) The waste was stored in open containers in public areas

iii) Segregation of different types of medical waste was being done

iv) Waste handlers used bare hands while segregating the waste

Findings

i) Though waste should have been collected daily for storage, it was being collected only once a week

ii) Gloves were not used by the waste handlers even though required by the medical waste management rules

Observations

I) Waste was collected weekly instead of daily because of shortage of staff. Consequently, there was unhygienic piling of waste at generation

II) Handling of waste with bare hands because of shortage of gloves increased the risk of handlers suffering serious infections

Audit Conclusion

Objective: Did hospitals adequately implement the government,s rules on management of medical waste?

Conclusion: Implementation of government’s rules on management of medical waste by government hospitals was seriously inadequate.

Audit Recommendations

I) Health department should institute systems to ensure safe storage of toxic hospital waste

II) Health department should ensure that waste handlers use appropriate gloves

Water is 70% part of the earth. Out of this only 2.5% is fit for human and plant consumption. Fresh water is only 1% of the whole quantity of water. Remaining is the salt water.  Water is a scarce commodity. Per capita availability of Kuwait is only 20 cubic meter per year. It is only 118 cubic meter availability of water in case of Kingdom of Saudi Arabia. The nations which are having per capita availability of water less than one thousand cubic meters are called water stressed nations. There are issues of quality and quantity. Pollution of water is an issue.

Pollution is said to occur when a substance of condition (such as heat) degrades the quality of water so that the water fails to meet established standards or cannot be used for a specific purpose.

Audit objectives help to establish clear audit objective. Doing so gives the auditor a sense of direction and clarifies the purpose of audit. Each and every audit conclusion in the reporting phase must be made against corresponding audit objectives.

The scope of audit establishes the audit’s framework or limits in terms of the subjects or activities to be audited and the time frame the audit will cover. For instance, in an audit of water issue, the scope might be fresh water distribution.

Identifying lines of enquiry in a performance audit involves analyzing information about the business entity or sector in terms of four selection factors. Information on these selection factors helps identifying lines of enquiry. If an area is ranked highly on most of these factors, it would be identified as a key area for a detailed audit enquiry

Significance in a PA refers to more than financial materiality. Significance is high when an activity is considered of particular importance to the success of a project and where improvement would have a significant effect on project operations. Significance is low where an activity is of a routine nature and poor performance would have minimal impact.

Assess the risks to good management- management inaction in response to identified weaknesses, adverse comments by legislature or media etc.

Is the audit likely to make the difference in terms of economy, efficiency and effectiveness?

Is it feasible to audit or not to carry out audit in accordance with professional standards?

Major lines of enquiry can be as follows

i) Water management strategies

ii) Safe drinking water supply

iii) Impacts on health of an inadequate water supply

iv) Distribution of water supplies

v) Sanitation policies

vi) Environmental laws for water conservation and protection

vii) Pollution control policies

In Performance Audit, criteria are tailor made according the situation. While analyzing water issue, it can be derived from the sources like environmental reports and assessments, global and regional agreements, government policies and programs, laws, rules and regulations, and performance audit standard set by the management etc.

From major audit themes on water pollution we can set objective and questions against these themes. We can set our objective as whether database of the sources and quantum of pollution has been created and has the risks to the river and health assessed by the central government. There can be number of questions to this objective

i) Whether all causes/sources of pollution to the river/lake have been identified

ii) Whether the contribution of each source of pollution has been quantified

iii) Whether risks to the health as a result of pollution to rivers/lakes identified

iv) Whether risks to the environment have been identified

Whether planning for control of pollution was effective and took into account data and identification of risks

i) Whether planning for the control of pollution was based on accurate/recent/reliable data

ii) Whether planning for the control of pollution was based on assessment of risk

iii) Whether planning for the control of pollution was based on assessment of requirement/availability of funds

Air that contains one or more chemicals or substances or possesses a physical condition like heat in high enough concentrations to harm human, other animals, vegetation, other animals, vegetation or materials.

Smoke comes from a combination of two words: smoke and fog. It is the thick layer of brown haze that hangs over many cities on hot, sunny day. It is usually caused by reactions between sunlight and the chemical pollutants now found in urban areas.

Acid rain is rain, snow or fog that is polluted by acid in the atmosphere and damages the environment. It is caused by two common air pollutants- sulpher diaoxide and nitrogen oxide that are produced by burning of fossil fuels. When these substances are released into the atmosphere they can be carried over long distance by prevailing winds before returning to the earth as acidic rain, snow, fog or dust. When the environment cannot neutralize the acid being deposited, damage occurs.

Persistent Organic Pollutants (POPs) are toxic substances released into the environment through a variety of human activities. They include industrial chemicals and pesticides such as dichoro-dipheny-trichloroethane (DDT). Because of their chemical structures, POPs are very stable and can last in the environment for years or decades. They do not affect air but our food which we eat. They can cause cancer and tumours, birth defects etc. We may ban the use of pesticides such as aldrin, endrin, and chlordane etc. Convention in Stockholm set out control measures covering the production, import, disposal and use of POPs and called on those signing it to promote the best available technologies and practices for finding alternative to POPs.

Ozone is a colourless gas. Most of the ozone is found in a layer between 15 and 35 KM above the earth’s surface in a region of the atmosphere known as stratosphere. The ozone layer is the protective layer that saves lives from the ultraviolet radiation of the sun. In 1985 scientific concerns about damage to the ozone layer prompted governments to adopt the Vienna Convention on the protection of ozone layer, international negotiators met again to adopt legally binding commitments in the Montreal Protocol on substances that deplete the Ozone Layer, which required industrialized countries to reduce their consumption of chemicals harming the ozone layer. Phase wise program has been chalked out to completely phase out of ODS by 2030 and it is being monitored.

Slides 40&41 are self explanatory.

Documentary evidence in paper or electronic form is the most common form of audit evidence. Such evidence is obtained by examining files and inspecting other forms of documentation. Documentary evidence may be external or internal to the organization. External documents may be letters, reports from the external agencies industrial units etc. Internal documentary evidence originates within the audited agency. The reliability and relevance of documentary evidence should be assessed in relation to the objectives of the audit. For example, existence of a procedure manual is not evidence of the quality of the procedures and does not prove that the manual has been put into practice.

Physical evidence is obtained by observing people and events at sites. The evidence can take the form of written notes or photographs, charts, maps, pictorial representations etc. It is recorded. A picture of an environmentally unsafe condition such as industrial chimney spewing out thick black smoke can be far more compelling than a written description. This has to be further supported to assess this. This is better if it is corroborated by some other evidence.

Statements can be obtained from employees of audited agency, beneficiaries, and clients of the programme being audited. It helps to corroborate the evidence.

Analytical evidence stems from analysis and verification of data by the auditor. This is quite a common form of evidence in audits of air issues. The analysis can involve computations, analysis of ratios, trends and patterns in data obtained from the audited agencies or other relevant sources. Comparison can also be made with prescribed standards or industry benchmarks.

Evidence can be gathered directly by such techniques as interviews, survey or physical observation at sites.

Auditors can use information and data gathered by the auditees. This includes information and data found in files, databases, reports etc.

Auditors may use data generated by third parties, such as pollution Control Agencies, Ministry of Environment, Ministry of health, or other monitoring agencies, WHO etc.

Slide 44 & 45 are self explanatory.

There are 1746000 specifies in all. Only animal kingdom has species of 1320000. Habitat refers to the areas in which living organisms live and survive in ecological balanced environment. Habitats are classified as Terrestrial like Forests, Grasslands, Deserts, Tundra. The other categories are fresh water and coastal habitats

Species loss is a natural loss like dinosaurs. However, it has been observed that the rate of species extinction has accelerated dramatically as a result of human activities. It is estimated that the current rate of extinction is between 1000 and 10,000 times the natural rate. It is associated to illegal hunting, destruction of natural habitats and overexploitation of resources. Extinction raises specific concerns because of irreversibility.

47 and 48 are self explanatory

49,50,&51 are self explanatory.

Thanks

General AUDITTING Bureau (GAB)

Saudi Arabia

Mr. Amer Rashed Al-Zomami.

Mr. Sultan Marzouq Al-otaibi.