17TH COMMONWEALTH AUDITORS GENERAL CONFERENCE
OCTOBER 10-13,1999
SUN CITY
SOUTH AFRICA
SUB-THEME: ENVIRONMENTAL AUDIT-THE FUTURE
IMPORTANCE AND ROLE OF SAIs TO
ENCOURAGE THIS PRACTICE
THE AUDIT OFFICE OF THE REPUBLIC OF CYPRUS
Prepared by: A. Kourtellis
Senior Principal Auditor
CONTENTS
Page
1.
ENVIRONMENTAL PERSPECTIVE
1
2.
URBANIZATION
2
3.
INDUSTRIALIZATION
3
4.
POLLUTION
5.
COSTS
6.
ENVIRONMENTAL AUDIT
7.
ENVIRONMENTAL AND SUSTAINABLE DEVELOPMENT
AUDITS CAN CONTRIBUTE TOWARDS IMPROVED
GOVERNANCE
8.
MANDATE TO CONDUCT ENVIRONMENTAL AND
SUSTAINABLE DEVELOPMENT AUDITS
9.
CYPRUS SAI CAN MAKE A DIFFERENCE IN SUPPORTING
CYPRUS ENVIRONMENTAL PLAN
3-4
4
4-5
5-6
6-8
8-10
10.
EXTERNAL ENVIRONMENTAL BUILDING INITIATIVES THAT
CAN BE UNDERTAKEN BY A SAI
10-11
11.
BARRIERS IMPEDING ENVIRONMENTAL AND
SUSTAINABLE DEVELOPMENT AUDITS
11-12
12.
CO-OPERATION BETWEEN SAIs
12-14
1. Environmental Perspective
1.1 The natural environment is a requirement and a resource for human life.
Humans act upon their surrounding natural environment, not only by using its
resources, but also simultaneously by changing it and adopting it to meet their
economic and other needs.
Human activities are now affecting some of the most basic climatic and
biological cycles of the planet. Ozone layer depletion, global climate change,
trans-boundary shipment
of hazardous materials, soil loss, desertification,
deforestation, and destruction of wetlands are some οf the practical
manifestations of the impact of human activity on the environment.
1.2
The United Nations Conference on Environment and Development
(UNCED), held in Rio de Janeiro in June 1992, marked an important milestone
in the awakening of the world to the need for a development process that does
not jeopardize the future of generations to come. The major achievement of the
UNCED includes the adoption of a set of principles, (the Rio Declaration on
Environment and Development), to support the sustainable management of
forests (Forestry Principles) and two binding conventions designed to prevent
global climate change and to conserve biologically diverse species (convention
on Biological Diversity).
These conventions have been signed by over 150
nations of the world.
1.3
Increase in Population, Urbanization and Industrialization are the three
trends most widely blamed for causing environmental problems. The world’s
population is increasing by around 85 million per
year.
A United Nations
survey revealed that the world’ s population will reach 9 billion by 2050, from
around 6 billion today. Most of that growth will be in developing countries.
Population in poor countries is growing so fast that natural resources are failing
to keep up with the number of extra people. In developing countries sewage
contaminated water is estimated to kill some 2 million children every year.
2. Urbanization
2
2.1 The growth of population in urban areas is increasing all the time and
according to the United Nations the number of people living in urban areas is
expected to double to more than 5 billion, within the next 30 years. Most of that
growth will take place in developing countries.
2.2 Urban growth exposes people to serious environmental hazards and often
local governments are not in a position to provide the most basic environmental
services that people need. As a result millions of people live in poor conditions
with obvious consequences on their health and social and moral values.
Sudden urbanization is often associated with destructive effects on the
environment
and
the
necessary resources
required
for sustainable
development.
2.3
The serious problems of environmental degradation resulting from
unplanned urbanization needs to be evaluated in terms of:
(i)
land use alteration
(ii)
inadequate shelter, water/sanitation and other facilities in
slum and other urban poor areas
(iii)
degradation of community environment
(iv)
little control of industrial waste emissions, which greatly
compounds the problem of environmental pollution
.Provision of water, sanitation and other environmental infrastructure will
adequately improve urban life.
3. Industrialization
3
3.1 The growth of industries in most developing countries has generally been
unplanned in the past. Industry is essential for the production of goods and
services and is a major source of employment and income, and industrial
development as such is essential for economic growth.
At the same time,
industry is a major material user and consequently industrial activities result in
emissions into the atmosphere and to the environment as a whole. Protection
of the atmosphere can be enhanced, inter alia, by increasing resource and
materials efficiency in industry, installing or improving pollution
preventing
technologies and replacing dangerous chemicals and other ozone depleting
substances with appropriate substitutes, as well as by reducing waste and byproducts.
4. Pollution
4.1 As a result of population growth, industrialization and human activities,
concentration of certain gases in the atmosphere has been increasing rapidly.
This has led to the realization that changes in the atmosphere composition are
capable of affecting the surface climate of the earth.
4.2 Increasing population has also contributed to higher levels of consumption
which in turn has implications on the depletion of natural resources and the
generation of waste and pollutants. Pressures on the environment can be
further exacerbated by rising living standards and final consumption
expenditure.
4.3 Global awareness for prevention and control of pollution has increased
over the past 20 years, in particular national capabilities of pollution control
have been strengthened in a number of countries.
With the support of
International Agencies, a major achievement has been the creation and
operation of environmental monitoring networks. Such networks now exist for
the monitoring of air and water quality, food contamination, environmental radio
activity and human exposure to environmental pollution. This is augmented by
4
technical collaboration amongst the nations through the exchange of
information, technology transfer, training and research.
5. Costs
5.1 Recent research suggests that pollution in developing countries is indeed a
severe problem and imposes a heavy economic cost. A World Bank study last
year put the cost of air and water pollution in China at $54 billion a year,
equivalent to an astonishing 8% of the country’s
GDP.
Another study
estimated the health costs of air pollution in Jakarta and Bangkok, in the early
1990s at around 10% of these cities income.
These are no more than
estimates, but whichever way the sums are calculated the cost is indeed
enormous.
6. Environmental Audit
6.1 Environmental audit is an emerging audit concept. Though there has been
a growing realization about the environmental problems, yet environmental
auditing has not been established as an audit regime by the SAIs in the world.
In many ways environmental audit it is still in a state of flux and development.
The nature and scope at the work can be defined in various ways; different kind
of individuals skills are involved; terms of reference for examination may differ;
approaches and techniques are still continuing to emerge; and there are
different ways of reporting the results and suggest ways for improvement.
These variations and uncertainties combined with some inherent difficulties i.e.
from subjectivity to quantification of environmental impacts, mean that
difficulties exist when trying to develop a coherent programme of environmental
audit.
6.2 Responsibility for environmental protection and sustainable development
lies with both the public and private sectors separately and/or in partnership.
However public sector bodies both in central and local government have key
5
roles and responsibilities.
It is important to recognise that in public sector
programmes, no less than in the private sector, environmental protection is
rarely if ever pursued in isolation, or as an absolute purpose. The aim is to
secure sustainable development in an appropriate balance with economic
growth. Sometimes environmental and economic benefits go hand in hand i.e.
reducing waste and improving energy efficiency. But needless to say at times
there are conflicts. For example a village bypass may bring welcome relief from
traffic and noise but on the other hand it means running a road through a local
beauty spot or through agricultural land.
Thus at times green winners can
mean green losers.
6.3
As it has been agreed at XV ICOSAI (Cairo) conference environmental
auditing is an independent external audit and includes the disclosure of
environmental
assets
and
liabilities,
compliance
with
legislation
and
conventions, both national and international and such measures instituted by
the audit entity to promote economy, efficiency and effectiveness.
7.
Environmental and Sustainable Development Audits can contribute
towards improved Governance
7.1 Environmental and Sustainable Development audit is a very broad subject.
It covers economic social and environmental issues and it is often one of the
tools which aids government institutions to protect the environment while
maintaining of the same time sustainable level of development and economic
growth.
7.2 Very often many public sector programmes are carried out on a large scale
and involve massive resources. Their impacts on the environment and related
subsequent consequences were in the past ignored or not properly understood
and accounted for. In this respect environmental and sustainable development
audits performed by SAIs can bring to light shortcomings on the part of the
governments while the recommendations which are often made by SAIs in their
reports help to improve the performance of the relevant government
6
departments and in some cases in reducing costs by recommending new
improved technologies and methodologies.
8.
Mandate to conduct Environmental and Sustainable Development
Audits
8.1 The Audit Office of the Republic is an Independent Office not coming under
any Ministry.
The Auditor General (A.G) and his Deputy are appointed by the President of the
Republic.
They are both members of the Permanent Public Service of the
Republic and cannot be retired or removed from Office except on the like
grounds and in like manner as a judge of the High Court.
The Auditor General controls all disbursements and receipts and audits and
inspects all accounts of moneys and other assets administered, and of liabilities
incurred, by or under the authority of the Republic and for this purpose he has
the right of access to all books, records and returns relating to such accounts
and to places where such assets are kept.
The AG submits annually a report on the exercise of his functions and duties to
the President of the Republic who shall cause it to be laid before the House of
Representatives.
The AG is also empowered to audit the accounts of Local Authorities and of
Public Corporations as provided by special legislation or by administrative
arrangement.
Especially for the audit of Public Corporations an audit law under the title “The
Public Corporate Bodies (Audit of Accounts) Law” enacted in 1984 provides
for the appointment of a private auditor to carry out the audit of the accounts
with the approval of the A.G. and giving at the same time the power to the A.G.
to perform any management or other type of audits.
7
8.2
Though the Cyprus SAI has no explicit authority in the Constitution to
contact performance audits, except the authority given by the Public Corporate
Bodies Audit of Accounts Law, during the last decade a number of performance
audits have been undertaken on a variety of topics, the results of which proved
to be very beneficial to the government. However recently a new proposed bill
specifying among others the duties of the Cyprus SAI was laid before
Parliament for enactment. The proposed bill gives power to the Cyprus SAI to
carry out performance audits and consequently environmental and sustainable
development audits.
8.3 The Cyprus SAI has not yet carried out any environmental and sustainable
development audits but the environmental issue has been raised on a number
of performance audits. More specifically in the performance audit of Quarry
Materials the Cyprus SAI pointed out the necessity to reinstate the environment
back to its original state after the expiration of the Quarry’s useful life. An
environmental study is now a prerequisite for the issue of a quarry permit, even
though it
is not a legal requirement.
Also in the audit of Motor Vehicles
inspection it was shown that the environment was burdened with the
uncontrolled exhaust emissions resulting not only from the lack of vehicles
inspections, but also from the use of diesel oil with sulphur content exceeding
1%, whereas, according to European Union directives this must be under
0.05%. It was also found that
harmful emissions (CO, CO2, HC, Nox) far
exceeded the accepted E.U. levels. The study has shown that 10% of the
vehicles with high emissions were responsible for 40% of the CO and 30% of
the HC going into the atmosphere. Furthermore, the environment is heavily
burdened by the uncontrolled disposal of used catalytic converters.
There is no doubt that as time progresses pure environmental audits will be
undertaken especially as the public becomes more and more aware of the
need to protect the environment.
9. Cyprus SAI can make a difference in supporting
Cyprus Environmental Plan
8
9.1
In Cyprus the government bodies primarily responsible for formulating
environmental policy are the Department of the Environment which comes
under the jurisdiction of the Ministry of Agriculture, Natural Resources and
Environment and the Ministry of Social Insurance which is responsible for the
industrial pollution. Other entities which may initiate environmental policy are
the Ministries of Communication and Works, Internal Affairs, Health and
Commerce and Industry and Tourism, members of Parliament and other
interested parties, but in general the Department of the Environment always
plays an important role on all environmental matters.
9.2 In Cyprus though various laws and regulations exist for the protection of the
environment, these with the passing of time have been considered inadequate
as they are in general, out of date, since they were enacted long ago when the
impact of pollution on the environment was not fully known. Thus in 1997 the
Ministry of Agriculture Natural Resources and Environment has prepared with
the help of other Ministries and other interested parties, a draft environmental
bill which currently undergoes legal examination by the Cyprus Law Office. The
draft bill is expected to be laid before Parliament for enactment within the next
eighteen months. Among others the proposed bill covers the following areas.
- Environmental duties and responsibilities of the Government
- Environmental quality
- Environmental data for publication
- Compensation for causing environmental damages
- Creation of an environmental fund
- Sources of income of the environmental fund
- Obligation to prepare environmental study before granting licence to operate
certain types of industry
- Preservation of the environment
- Preservation of wild life
- Preservation of housing areas
9
- Preservation of seasides
- Atmospheric pollution
- Preserved areas
- Noise pollution
- Soil preservation
- Sewage treatment
- Control of dangerous chemicals
- Radioactive materials
Recently with Cyprus being a candidate country to join the European Union
(E.U.), serious attempts are being made to bring existing environmental
legislation in line with that of the E.U. and the draft environmental
bill
mentioned above has this in mind.
9.3 It is thus evident that with the enactment in the non distant future of the
above environmental bill, the Cyprus SAI will undoubtedly have ample areas on
which to conduct environmental and sustainable development audits.
The
result of such audits will inevitably aid the implementation of the provisions of
the proposed bill and can also lead to improvements when omissions and
weaknesses on the part of the bill or on its application are revealed.
10.
10.1
External Environmental Building Initiatives
that can be undertaken by a SAI
Each SAI can no doubt influence to some extent his
environmental
policies
and
environmental
government’s
management
systems.
Environmental management system like any other management system may
present weaknesses and omissions which the SAI can bring to light through
the audit process.
His suggestions often provide guidance to the relevant
government Ministries and departments which often lack co-ordination on
managing environmental matters especially in situations where there are
overlapping responsibilities or many entities or
departments.
tiers of government
10
10.2 Other areas in which the SAI has an important role to play is to influence
the government to pursue a policy of Environmental Performance Reporting if
there isn’ t one or if there is one to make suggestions for its improvement.
Environmental Performance Reporting is closely linked with Environmental
Performance Indicators
which are essential in measuring Environmental
Performance.
10.3 Environmental Accounting is also another area in which the SAI can play
an important
part by assisting or influencing the government towards
establishing or refining its policy on the matter. Even though Environmental
Accounting is still at its infancy and no accounting standards have yet been
issued it is a very important area and no doubt standards will be issued in the
future and applied for both in the public and private sector, as all material
environmental assets and liabilities including contingent liabilities must be
recognised, measured and properly disclosed or accounted for in the
accounting systems.
11. Barriers Impeding Environmental and
Sustainable Development Audits
11.1 Dispute the progress made over the last few years environmental audits
are still at their infancy and many SAIs haven’t yet developed the expertise to
properly undertake such audits.
The Cyprus
SAI is no exception, but
nevertheless considers that environmental and sustainable development audits
can be carried out and integrated into the ongoing audit process. Emerging
Problems and difficulties will be dealt with and ironed out as expertise grows.
11.2 The main barriers to environmental and sustainable development audits
are:
-
Lack of experience in carrying out such audits.
-
Absence of internationally accepted Auditing Standards and criteria for
environmental related accountability.
11
-
Lack of effective monitoring and reporting systems of pollutants and other
hazardous materials.
-
Lack of codification and integration of environmental laws, rules and
regulations necessary for the work of auditors.
-
Inadequate international conventions, declarations and treaties.
-
Lack of environmental consciousness needed to protect volunarable
ecosystems, habitants and biodiversity as well as the impact of air and water
pollution on human health and trans-boundary movement of hazardous waste.
-
Absence of economic accounting of natural resources, resulting in inaccurate
estimates of the existing assets and liabilities including future liabilities.
-
Missing linkages of environmental issues between the political and economic
policies.
-
Lack of global environmental reporting standards.
-
Inadequate environmental legislation, both at national and international level.
11.3 Above barriers affect SAIs but it must be stressed that environmental and
sustainable development audits are not significantly different from other types
of audits currently performed by SAIs, as they encompass regulatory and
financial compliance and performance criteria. However it must be recognised
that there are some unique challenges in conducting environmental and
sustainable development audits. In this context the Cyprus SAI believes that
future environmental and sustainable development audits can be performed by
the existing audit staff preferably with the help of outside experts when required.
Also the recommendations mentioned under section 12.1 of this paper will help
to lessen the difficulties that may be encountered in the contract of such audits.
12. Co-operation between SAIs
12.1 In the light of the difficulties that exist in carrying out environmental and
sustainable development audits the following recommendations can be put
forward which will mitigate the effects of these difficulties.
12
-
SAIs should consult with each other and exchange information, ideas,
innovations, helpful in the establishment of Environmental Auditing regime.
-
INTOSAI should build up a data bank relating to Environmental Audits and
should publish guidelines for the member countries.
-
SAIs to recognise that the existing INTOSAI auditing standards should be
adopted for Environmental Auditing and the criteria for such auditing may
be further updated to address emerging environment issues.
-
SAIs should make efforts to help develop and strengthen internal audit as
a tool of management control in relation to environmental activities.
- AIs should assist in the establishment of natural resource accounting in their
own jurisdictions.
- SAIs should help in the collection of cost-benefit data incorporating the
environmental cost of its various projects and programs and should also
extend it to cover the private sector. The data can then become available
for the development of criteria for Environmental Auditing.
- s should encourage the writing of Environmental Audit reports based on
regularity, compliance issues in the format of performance audit reports for
the considerations of the forums like Public Accounts Committee (PAC) or
other such institutions responsible for the accountability process.
- s should encourage the formation of working groups to prepare guidelines
on the issues of air and water pollution, bio-diversity and trans-boundary
movement of hazardous material and recycling of materials.
- AIs should helpf materials.
SAIs should helpg systems to verify the results of the environmental
policies and to notify the environmental problems.
- AIs to get help from international co-operation agencies in the training and
exchange programs in the realm of Environmental Audit.
- NTOSAI to establish a clearing house for the exchange of information on
Environmental Auditing.
13
- NTOSAI to help establish a fund to encourage backup studies and research
in the field of Environmental Auditing and economic accounting of natural
resources.
- AIs should evolve a system of verification/certification of Environmental
Impact Assessment (EIA) of proposed development projects in their
respective jurisdictions.
- AIs should encourage the use of information technology to facilitate
availability of economic data for the timely completion of Environmental
Audit assignments and also to ensure quality output.
- AIs to encourage compliance of their respective countries with international
covenants and should also encourage best practices in concurrent, joint or
co-ordinated audits within the commonwealth.
- AIs should consider recommending the development of legislation for giving
incentives to industries which out-performed the prescribed environmental
quality standards and emission quotas.
- AIs to undertake a leading role in environmental audit of aid projects within
the commonwealth region.
SAIs to consider scope for strengthening
environmental audit of activities with trans-boundary impacts.
12.2 It is my firm belief that the 17th Commonwealth Auditors Conference will
recognise that Environmental Auditing
is an emerging concept and a new
regime of auditing techniques for the SAIs of the world. Barriers in conducting
environmental audits should be recognised analysed and solutions or
recommendations for mitigating their effects should be discussed and where
appropriate adopted. Ways and means should be sought for increasing the cooperation
between
SAIs
on
areas
of
environmental
management,
environmental accounting, environmental performance measurement and
environmental performance reporting.
It is important that the existing
momentum by SAIs on environmental and sustainable development audits
continues so that emerging improvements in the conduct of such audits come
to light.
14
12.3 In conclusion it must be emphasised that it is the duty of all governments
and consequently their SAIs to protect the environment that we live in, for the
sake of our children and grandchildren.
REF.:/COMMONW/99060101.E01