Environmental Auditing

Notes for an address by Sheila Fraser, FCA, Auditor General of Canada, Cour des comptes of Tunisia, Ottawa, Ontario, 13 October 2006

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Madam (First President of the Cour des comptes of Tunisia) and distinguished guests.

Introduction

Thank you for your warm welcome. I'm pleased to have this opportunity to speak to you about the progress that has been made in environmental auditing.

I know you have an interest in increasing your environmental auditing capacity. The topics you proposed for my presentation reflect your commitment to advancing environmental auditing.

My colleagues had the privilege of meeting Madame Kefi during the INCOSAI in Budapest in October 2004. Johanne Gélinas, the Commissioner of the Environment and Sustainable Development, and her staff send you their best wishes and look forward to collaborating with you in the future.

I would like to begin with an overview of the Office of the Auditor General. I will then discuss the Canadian experience in environmental auditing and the role of our Commissioner of the Environment and Sustainable Development.

I will later talk about the INTOSAI Working Group on Environmental Auditing, which I‘ve chaired since 2001. This Working Group was formed in 1992 and first chaired by the SAI of the Netherlands until October 2001. As of November 2007, the SAI of Estonia will be its new Chair.

In the course of my presentation, I'll discuss the role of SAIs in advancing environmental auditing. Finally, I'll highlight some results from the 2003 WGEA environmental auditing survey, which I believe will interest you.

The Canadian Audit Model

As you know, supreme audit institutions follow one of three audit models: the Westminster or parliamentary model; the judicial model; or the Board or collegiate model. Whereas the Cour des comptes of Tunisia follows the judicial model, the Office of the Auditor General of Canada follows the Westminster model.

In Canada, the Auditor General is an officer of Parliament. Our audit office is therefore part of the legislative branch and not the judicial branch as is the case in Tunisia. Notwithstanding the differences in our mandates, we share a common vision.

This vision rests on our desire to assist in ensuring accountability of government. Through our audits, which examine whether public programs are managed with due regard to economy, efficiency, and environmental impact, we can contribute to better-managed government, including environmental aspects. By sharing best practices, we can strengthen environmental auditing throughout the international community.

Some SAIs have a specific legal mandate to conduct environmental audits. Among these are Canada, Iceland, Peru and Nepal. Fewer than twenty per cent of the 114 SAIs that responded to the 2003 WGEA survey said they had a specific mandate to conduct environmental audits.

However, a specific legal mandate is not necessary for doing environmental audits. In fact, many SAIs with different legal mandates have demonstrated how environmental auditing can be incorporated into their work.

Evolution of Environmental Auditing

I will say a few words on how environmental auditing got started.

Environmental auditing evolved from a growing concern for sustainable development and the rising costs of environmental protection. A number of noteworthy events influenced environmental auditing as we know it today.

In 1972, the United Nations Environment Programme was created. During this decade, 31 major national environmental laws were passed in countries of the Organization for Economic Cooperation and Development.

In 1987, the World Commission on the Environment and Development set a direction for comprehensive global solutions to sustainable development. The Brundtland Commission, as it is also called, defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition was included in the amendments to the Auditor General Act of Canada that created the position of our Commissioner of the Environment and Sustainable Development.

Then five years later, the 1992 Earth Summit in Rio De Janeiro, Brazil, created a blueprint for action to make development economically, socially and environmentally sustainable for the twenty-first century.

A decade later, in 2002, the World Summit on Sustainable Development was held in Johannesburg, South Africa, as a follow-up to the Rio Earth Summit.

At both the 1992 and 2002 Summits, countries committed to preparing National Sustainable Development Strategies, which SAIs will potentially audit in the future.

Over the past thirty years, environmental governance has been implemented at various levels of government. And SAIs have responded accordingly by adjusting the scope and subject of their audits. We know that in the last fifteen years alone, individual SAIs have conducted more than 2000 environmental audits.

The Role of SAIs in Environmental Auditing

For many SAIs, environmental auditing has become a mainstream activity. And their efforts in this area are helping governments do a better job.

When governments spend significant public resources on managing environmental problems, supreme audit institutions can provide the information legislatures need to hold them accountable for prudent financial management.

They also contribute to holding governments accountable for compliance with international agreements as well as with domestic laws and regulations.

SAIs will also want to review their government's financial statements to ensure that they account for environmental costs and liabilities created by land holdings and ongoing operations.

I will now speak about the Canadian experience in environmental auditing.

Environmental Auditing in Canada

Our Office started doing environmental audits in the early 1990s. These audits were conducted using the traditional performance and compliance audit approach.

Then, in 1995, our mandate was expanded specifically to include the federal government's performance in protecting the environment and promoting sustainable development. In addition to focussing on economy, efficiency and effectiveness, we were asked to consider whether public programs are managed with due regard to the environment.

The expansion of our mandate also created the position of the Commissioner of the Environment and Sustainable Development and an environmental audit group within our national audit office.

Let me say a few words about the role of Canada 's Commissioner of the Environment. An important part of her work is to audit the federal government's sustainable development strategies. Since 1995, departments and agencies of the Canadian government have been required by law to develop sustainable development strategies and to update these strategies every three years. The Commissioner reports annually to Parliament on the progress made by departments and agencies in meeting their sustainable strategy objectives.

By reporting her findings to Parliament, the Commissioner helps parliamentarians hold the government to account for its commitments in sustainable development.

The Commissioner also manages the environmental petitions process. This process gives Canadians an opportunity to bring their concerns about the environment and sustainable development to the attention of the federal government.

The Commissioner's annual report contains a chapter on environmental petitions. She reported in 2002 that protecting fish and fish habitat remains a significant concern for Canadians.

In her 2002 Report, Johanne Gélinas reported on a wide range of environmental issues. I would like to use her audit of federal contaminated sites as an example of environmental auditing that we conduct in Canada.

The objective of this audit was to assess the federal government's progress in the management of contaminated sites under its responsibility.

The audit based its work on the expectation that the federal government would have a policy framework for dealing with its contaminated sites, and that departments would have standards for conducting environmental assessments.

The audit found that the government didn't know how many of its sites were contaminated. Nor did it know the full extent of the risks to human health and the environment, or the cost of cleaning up or managing the sites.

This Report also included a chapter on abandoned mines in the North. The objective of this audit was to determine the progress the federal government had made in managing contaminated sites resulting from abandoned mines in northern Canada.

The audit based its work on the expectation that the federal government would have established a management program for the contaminated sites under its jurisdiction, north of the 60th parallel.

The audit found that the government's band-aid approach in covering care and maintenance of these mines was not sustainable in the long term. That was in 2002.

In 2003, the federal government committed 175 million dollars over two years to address the higher risk federal contaminated sites.

Then, in 2004, it also committed to spending four billion dollars over ten years to clean up contaminated sites. Of this amount, 3.5 billion dollars is earmarked to clean up contamination on federal lands. There are about 10,000 federal contaminated sites across Canada.

Of the government's spending on federal contaminated sites, sixty per cent will go to cleaning up sites in northern Canada. These include heavily contaminated abandoned mine sites in Canada 's territories.

The federal government will spend the remaining 500 million dollars for the remediation of certain other sites, such as the Sydney tar ponds in eastern Canada. Contaminated sites are found in every province and territory of Canada.

I'm pleased that our audits have contributed to the government's progress in cleaning up contaminated sites across the country.

The Commissioner recently conducted au audit of the federal government's implementation of its climate change strategy.

In her 2006 Report that was tabled in September, the Commissioner reported on the government's progress in reducing greenhouse gas emissions. She also reported on its progress in establishing measures to help Canadians adapt to the impacts of climate change.

This report, which is entirely devoted to the federal approach to climate change, is critical of the government's record in this area. In particular, she reported that Canada will not meet its international commitments to reduce greenhouse gas emissions.

She also said in her report that Canada is not prepared to cope with the consequences of climate change. You may be interested in consulting her Report on our Web site.

In Canada, we are incorporating environmental issues into our methodology. We have developed guidance on integrating environmental considerations into performance audit work. This guidance is useful in assessing environmental risks when conducting long-term audit planning. We are also developing a course to help auditors apply this new methodology.

Scope of Environmental Auditing

There are no significant differences in audit methodology and approach between environmental auditing and other types of auditing. The full range of auditing tools can be applied to environmental auditing.

A financial audit, for example, can assess whether environmental costs and liabilities are reflected in financial statements.

A compliance audit can provide assurance that government activities are conducted in accordance with environmental laws, standards and policies, both at the national and international levels.

Performance audits are widely used by SAIs to assess the government's management of environmental programs. These can determine, for example, whether environmental programs are managed with due regard to economy, efficiency, and environmental impact, and whether there are measures in place to determine how effective the programs are.

Environmental auditing differs from other types of auditing in its focus on environmental issues. Some SAIs have developed specialized knowledge in some areas.

Building Capacity in Environmental Auditing

As I mentioned earlier, I chair the INTOSAI Working Group on Environmental Auditing. And the Commissioner, Johanne Gélinas, is the Associate Chair. Our audit office is actively involved in promoting the development of environmental auditing techniques and their widespread application by SAIs.

The WGEA supports SAIs in building their environmental auditing capacity. Essentially, the Working Group aims to encourage SAIs to use their audit mandates and audit methods in the field of environmental protection and sustainable development. It also promotes cooperation among SAIs to address environmental issues that cross national boundaries.

The WGEA facilitates networking among SAIs and provides guidelines on how to conduct audits with an environmental perspective. The guidelines for water and waste audits may be of special interest to you. You'll be interested to know that the WGEA is currently developing new guidelines on biodiversity and on auditing measures taken by countries to meet their commitments made at the Johannesburg 2002 Summit. The Working Group guidelines are designed to help SAIs increase their knowledge in environmental auditing.

As you may know, the Working Group helped develop a two-week training course on environmental auditing in English. The first Environmental Auditing Workshop took place in Antalya, Turkey, in 2003. And a second workshop was given in Nairobi, Kenya, in February 2004. This training course, translated into Spanish, has been offered twice in South America and Central America. (It has not been translated into French or Arabic.)

Through its training course, the Working Group assists SAIs in acquiring a better understanding of environmental auditing, and in increasing their ability to conduct environmental audits.

The Working Group develops its auditing tools in several languages. These tools are a useful starting point for many environmental audits.

Now, I would like to mention some of the highlights of the 2003 WGEA survey.

Highlights of the 2003 WGEA Survey

Every three years, the WGEA Secretariat does a survey of the INTOSAI community. This survey is useful for analyzing trends and new developments in environmental auditing.

Survey results identified a number of environmental issues that concern INTOSAI members the most. These issues include waste, freshwater, air pollution, agriculture, pesticides, land development, forestry, and ecosystems.

Here are some interesting facts from our fourth survey…

Between 2000 and 2002, 67 SAIs produced a total of 568 audit reports concerning environmental issues. Of the 114 SAIs that responded to this survey, 54 per cent have personnel dedicated to environmental auditing, and 63 per cent indicated an interest in auditing aspects of sustainable development.

The survey also indicates that cooperation among SAIs has more than doubled for audits of international environmental accords. Furthermore, forty per cent of SAIs have exchanged audit information or audit experiences on environmental auditing with other SAIs.

While SAIs are interested in creating opportunities for increased cooperation, the survey shows that some feel that the incompatibility of language and auditing systems can be a barrier. In this regard, the regional working groups on environmental auditing offer a means to share expertise and knowledge.

Overall, the survey sketches a broad picture of how environmental auditing is evolving. The information collected assists the Working Group in adapting its guidance to meet the needs of SAIs.

The WGEA has started to review results of its fifth survey. We are pleased that you have participated again in our audit survey. These surveys are a useful tool for SAIs who are seeking ways to collaborate with other SAIs that are doing similar work.

Upcoming Networking Opportunities

The final results of the fifth Working Group survey will be distributed to INTOSAI members at our next congress in Mexico, in November 2007.

The 2004 INCOSAI meeting in Budapest provided an opportunity for SAIs to discuss the challenges they face. I would like to quote the President of the SAI of Poland, Mr. Miroslaw Sekula, who was at this meeting. “We have an obligation to cultivate and care for our planet—it must be our common duty. Our environmental failures and successes are not only ours—they affect people in other countries.”

In some countries, there may be insufficient environmental norms and standards or a lack of data on the state of the environment. In others, national monitoring and reporting systems may be inadequate.

Notwithstanding these challenges, our survey indicates that SAIs are committed to building an environmental auditing capacity.

Building on their network of experts and organizations, SAIs can find ways to extend existing financial and performance audit work to include environmental issues.

The next meeting of the INTOSAI Working Group on Environmental Auditing will be a great opportunity for networking. I would like to invite you to join us at our eleventh meeting in Tanzania, which will be held the week of June 25 in 2007. You will receive a formal letter of invitation in the coming months.

This meeting will include a two-day workshop on environmental auditing. Environmental specialists from international organizations, such as the UN Environment Programme, will make presentations during this workshop.

The tenth meeting, which was held in Moscow, Russia, a year ago, was attended by 62 supreme audit institutions. This meeting featured workshops on auditing biological diversity and climate change.

Conclusion

We live in a highly interdependent and interconnected world. Our environmental problems stretch right across the planet and cannot be dealt with by individual efforts alone.

Public awareness of environmental problems has grown steadily over the last several decades, and governments are facing increasing pressure to find solutions. Many national governments now have legislation and regulations that require governments to reduce pollution, protect ecosystems, or foster sustainable development.

As a result, governments face a mounting demand both at home and abroad for better governance and more accountability in relation to environmental polices and programs.

With this increased awareness has come a growing demand for environmental auditing services and expertise.

In light of this growing demand and recent trends in environmental auditing, I believe that environmental auditing will remain an essential auditing activity at both the national and international levels.

Thank you. I would be pleased to take your questions.