Tuesday, December 2, 2008

Environmental Compliance Audits - Role in Environmental Due Diligence

"Should I include a compliance audit as part of my environmental due diligence?”
This question arises frequently during environmental due diligence for mergers and acquisitions. The answer is actually relevant to many types of transactions, whether a business is being acquired, or if “assets only” are being purchased.

Compliance with applicable regulations can have a significant financial impact on a business transaction; however, separating and focusing on key issues will reduce the level of effort required and eliminate spending time and resources collecting information that has very little impact on the transaction.

Many of the “best-in-class” companies conduct routine environmental compliance audits of their operations. The important point is that even the best run companies will find compliance issues at their facilities and will routinely be in corrective action to improve their operations and address any deficiencies. Often, these non-compliance issues are administrative, such as maintaining required documentation, or training-related. Once the deficiency is identified, it can be quickly remedied at little or no cost.

While considering using a formal Environmental Compliance Audit during due diligence, it should acknowledged that most audits will identify some areas of improvement within the organization. Given this, careful consideration should be given to how this information will be used in the due diligence effort. Given the time frame typically allowed for due diligence, it is often difficult to conduct a formal compliance audit. Beyond the time constraints, confidentially concerns may limit access to facility staff who would typically be an integral part of the audit process. And in the end, the the most important consideration will be whether or not the information gathered will be useful to business decisions regarding the transaction.

In many cases, a COMPLIANCE ASSESSMENT is more useful that a COMPLIANCE AUDIT. For more information:

Article comparing Environmental Compliance Assessments to Compliance Audits

For further information contact Caltha LLP at
Caltha LLP Website

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