Audit of Enviromental Management System

Managerial Auditing Journal Auditing of environmental management systems: alegitimacy theory perspective Dennis W. Taylor Maliah Sulaiman Michael Sheahan

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To cite this document: Dennis W. Taylor Maliah Sulaiman Michael Sheahan, (2001),"Auditing of environmental management systems: alegitimacy theory perspective", Managerial Auditing Journal, Vol. 16 Iss 7 pp. 411 - 422 Permanent link to this document: http://dx.doi.org/10.1108/02686900110398331 Downloaded on: 16 February 2015, At: 08:59 (PT) References: this document contains references to 27 other documents. To copy this document: [email protected] The fulltext of this document has been downloaded 3233 times since 2006*

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Auditing of environmental management systems: a legitimacy theory perspective

Dennis W. Taylor Curtin University of Technology, Perth, Western Australia Maliah Sulaiman International Islamic University of Malaysia, Gombak, Selangor, Malaysia Michael Sheahan La Salle Investment Management, London, UK

Keywords

Environmental audit, Environmental management strategy, Theory, International standards, Stakeholders

Abstract

Provides findings from a survey of environmental management systems (EMS) auditors at ISO 14001-certified sites of Australian enterprises. Taking a legitimacy theory perspective, this study investigates the way in which enterprises with certified sites are meeting their implied social contract with stakeholders (also termed ``relevant publics'') on environmental conduct. Investigates whether EMSs, and related environmental audit functions, are being treated as quality assurance tools for the betterment of environmental performance, or as impositions to be complied with so as to maintain the credential of ISO 14001 certification per se. Seeks to throw light on this legitimacy theory issue by providing evidence about management's motivation behind, and strength of support for, the EMS auditing function at ISO 14001-certified sites. Obtains evidence about the objectives for the EMS auditing function, the resources committed to it and the perceived benefits arising from meeting the requirements for certification. Results point consistently to the conclusion that management have emphasised having enough compliance to maintain their site's ISO 14001 certification credential.

Managerial Auditing Journal 16/7 [2001] 411±422 # MCB University Press [ISSN 0268-6902]

Introduction There is a worldwide debate on the issue of environmental management, stemming from a flow of evidence about ecological degradation caused by economic development. The antagonists point to inadequate legislation and poor corporate management practices. The International Organisation for Standards (ISO), a worldwide body promoting cooperation in intellectual, technological and economic activity, responded to this concern by establishing a technical committee that produced the ISO 14000 series of standards. The underlying objective of the ISO in developing its 14000 series has been to create a framework for systematic, standardised environmental management practices that can encourage a trend towards continuous improvement in environmental performance by enterprises. Public recognition is accorded by the ISO through a certification scheme for those enterprises adopting its ISO 14001 standard. While the 14000 series covers various aspects of environmental management (e.g. ecolabeling, life cycle assessments) only ISO 14001 features a certification (registration) process. This first standard, the ISO 14001 on establishing, operating and auditing environmental management systems (EMSs) ± released with the ISO 14000 series in September 1996 ± is the focus of our study. Certification of enterprises by the ISO opens the opportunity for managements to adopt ISO 14000 standards as much for public recognition purposes, as for an internal management tool to be used to improve environmental performance. The ISO recognises that indirect market forces are likely to induce enterprises to obtain The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

certification. These market forces encapsulate societal norms that set the boundaries for an enterprise's behaviour, especially in relation to its impacts on stakeholders. Under legitimacy theory, an implicit agreement exists between society and organisations whereby the latter are permitted to continue certain types of operations as long as they are seen to satisfy specific societal needs (Deegan and Gordon, 1996). From an enterprise's viewpoint, the incentive for seeking ISO 14001 certification, a highly visible credential, might be explained, to some extent, by legitimacy theory. Our study provides findings from a survey of internal auditors of environmental management systems (EMSs) at ISO 14001 certified sites. Consequently, our investigation is limited in context to internal auditing activities within certified enterprises. While the focus of subjects used in this study has been directed to the environmental auditing function at the site level, wider perspectives by these subjects of the organisation's internal auditing function can not been quarantined. This is because the term `ènvironmental auditing'' embraces key characteristics of internal auditing in its definition. As defined by the International Chamber of Commerce, environmental auditing is: A systematic, documented, periodic and objective evaluation of how well environmental organisation, management and equipment are performing with the aim of helping safeguard the environment by (i) facilitating mangement control of environmental practices and (ii) assessing compliance with company policies, which would include meeting regulatory requirements (cited in Gilbert and Gould, 1998, p. 16).

`ÈMS auditing'' is a concept that is underpinned by such a definition of environmental auditing, but is tied specifically to ISO 14001's procedures and

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Dennis W. Taylor, Maliah Sulaiman and Michael Sheahan Auditing of environmental management systems: a legitimacy theory perspective Managerial Auditing Journal 16/7 [2001] 411±422

standards for auditing. These procedures and standards have evolved from those for quality management systems auditing according to Gilbert and Gould (1998). EMS auditing, they argue, represents an extension of a cyclic, systems-based management system approach of the ISO 9000 series. This systems approach is made clear in ISO 14011's definition of an EMS audit as:


A systematic process of objectively obtaining and evaluating evidence to determine the reliability of an assertion with regard to environmental aspects of activities, events and conditions as to how they measure established criteria, and the communicating such results to the client (cited in Gilbert and Gould, 1998, p. 258).

In order to assess EMS auditing practices from a legitimacy theory perspective, we obtain evidence about the espoused objectives of EMS audits, the financial and human resources committed to such audits, and the perceived benefits arising from ISO 14001 certification. Our research is significant for two reasons. First, there is a dearth of empirical evidence about the impact of the ISO 14000 standards on the quality of environmental management and auditing in Australia. Studies by Campbell (1995) and Maltby (1995) identified the principles, practices and participants in the field of environmental auditing prior to the final release of ISO 14001. Empirical evidence is needed to gauge management's motivation behind, and strength of support given for, the EMS auditing function in certified enterprises. Secondly, accounting studies adopting a legitimacy theory perspective have largely focused on corporate social and environmental disclosure (e.g. Guthrie and Parker, 1989; Patten, 1992; Deegan and Gordon, 1996; Brown and Deegan, 1998). Our focus on ISO 14001 certified entities can provide a new angle on the application of legitimacy theory ± that of management seeking to convey a favourable perception of environmental performance through site credentialism as distinct from corporate disclosures. This paper proceeds to elaborate on the pressures for corporate environmental management and auditing in Australia, the development of the ISO 14000 series of standards, and the legitimacy theory perspective of corporate environmental responsibility. It then develops the research questions, explains the research method and presents and discusses our survey results.

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Environmental management and auditing in Australia, ISO 14000 and the EMS audit Environmental management and auditing in Australia

In Australia, peak employer organisations and professional bodies (including the Australian Institute of Company Directors, the Australian Institute of Management, the Business Council of Australia, the Australian Manufacturing Council, the Australian Institute of Engineers and the Australian Chamber of Manufacturers) have each produced guides on corporate environmental disclosure, performance measures and other environmental information. In late 1996, the Mineral Council of Australia released a code entitled The Australian Minerals Industry Code for Environmental Management. The code requires that signatories report on an annual basis about their environmental performance by way of a stand-alone report. In the mining industry, stand-alone environmental reports have now been published by WMC Resources Ltd, Pacific Power, Mount Isa Mines and Orica Ltd. The accounting profession in Australia has also recognised the need for closer control over environmental matters. In 1995, the Institute of Chartered Accountants in Australia (ICAA, 1998) created an Environmental Accounting Task Force (EATF). Subsequently, the EATF issued a discussion paper to promote debate about environmental performance evaluation issues, reporting and auditing requirements, and the accountant's role in environmental matters. For example, the EATF proposed that a separate conceptual framework be developed to address environmental performance reporting and auditing issues not covered in the present Statements of Accounting Concepts. Four stages were proposed: . Stage 1. Exploring stakeholder information needs/the role of accounting in providing environmental performance information. . Stage 2. Identifying techniques to be used by an organisation to measure environmental performance (including design and implementation of systems and controls). . Stage 3. Establishing formats/guidance for public environmental performance reporting. . Stage 4. Establishing guidelines in relation to the audit of environmental performance information.


Dennis W. Taylor, Maliah Sulaiman and Michael Sheahan Auditing of environmental management systems: a legitimacy theory perspective

The EATF emphasises the need to audit environmental performance. In doing so, it supports the fact that the ISO has made EMS auditing a prerequisite for ISO 14001 certification.

Managerial Auditing Journal 16/7 [2001] 411±422

Development of, and certification under, the ISO 14001 standard

To promote a common approach to environmental management, the ISO established a Strategic Advisory Group on the Environment (SAGE) in June of 1991. The catalyst behind the promulgation of the ISO 14000 Standards was the Global Environmental Initiative in Rio de Janeiro in 1992. In December 1992, SAGE recommended that standards be developed to manage environmental issues. The ISO, in response to the recommendations of SAGE, established a technical committee that produced the ISO 14000 series of standards (International Institute for Sustainable Development, 1996). The standards cover five specific areas: EMS, environmental auditing, environmental labeling, life cycle assessment and environmental performance evaluation. The standards provide organisations with a framework within which they can establish environmental management policies, identify their environmental goals and obligations, implement procedures and evaluate progress towards meeting those goals. Voluntary compliance is the central principle of the ISO 14000 standards, although ISO 14001 features a certification process. While it may be voluntary, ISO 14001 certification may become an indicator of a company's commitment to environmental responsibility in future (Tucker and Kasper, 1998). To achieve ISO 14001 certification, an enterprise has to give its assurance that its environmental management system (usually at site level) conforms to the principles listed in the standard. This conformity is usually verified by an accredited independent organisation such as a large accounting or management-consulting firm. Although ISO 14001 essentially limits itself to reiterating certain traditional management principles (policy, planning, implementation and operation, checking and corrective action, management review and continual improvement) it is considered the reference standard in the area of environmental management (Boiral and Sala, 1998). The monitoring of the EMS through the establishment of an environmental auditing process is embodied in the management principles under the standard. To ease the implementation burden and improve the possibility of acceptance of

ISO 14001, the ISO provides flexible guidelines on maintaining an EMS that will assist compliance with local environmental laws. In particular, the ISO prescribes minimum performance criteria which have been initiated to ensure that an entity's activities can meet the legislative requirements of its jurisdiction without difficulty. An entity may choose to implement an ISO 14001 program but not seek certification. However, ISO 14000 certification brings with it several advantages. These benefits, according to the International Institute of Sustainable Development (1996), include improved public image, increased investor confidence, improved access to capital, conservation of materials, ability to express due diligence, reduced waste, improved process efficiencies, improved organisational culture and improved environmental performance. One objective of our study is to investigate which type of benefit ± a public legitimacy or an environmental improvement oriented benefit ± is more important to certified entities.

The EMS audit and the internal audit function

The internal audit function is recognised as integral to the process of effective management of business strategies and activities, and particularly for managing sustainable development strategies (International Institute for Sustainable Development, 1996). The Institute of Internal Auditors (1999) defines internal auditing as an independent appraisal activity established within an organisation as a service to the corporation. It is a control that functions by examining and evaluating the adequacy and effectiveness of other controls. An important element of this definition is that it is not limited to financial audits. Prior to ISO 14001, when the emphasis was on compliance with emission level regulations in local jurisdictions, environmental audits were performed mainly by technically-qualified engineers and scientists. Vinten (1991) first advocated that environmental audits be re-focused towards producing a management system that could provide information on environmental performance against predetermined targets. His idea led to a comprehensive report by the Institute of Internal Auditors on the role of internal auditors in environmental issues (Institute of Internal Auditors, 1993). At the same time, a consortium of professional accounting bodies determined that internal auditors should be expected to have expertise to deal with the

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interrelated components of internal control systems: the control environment, risk assessment, control activities, information and communication and monitoring (COSO, 1992). With the release of ISO 14001 in 1996, a shift in the strategy for managing environmental risk to a systems-based approach became firmly institutionalized. As a result, the expertise of accounting-qualified internal auditors has become considerably more relevant to the conduct of environmental audits. These skills are integral to an EMS audit, which at the very least, serves to verify that the structure of the environmental management system is in place and is operating effectively (Tucker and Kasper, 1998). Findings prior to ISO 14001, show that the internal audit department has had limited involvement in environmental audits. Akers and Klos (1995) found that only 17 percent of the companies that they surveyed had their environmental audits undertaken by the internal audit department. The majority (79 percent), engaged staff from `òther'' departments to conduct environmental audits. Only 4 percent said they used a combination of staff from the internal audit and `òther'' departments. The emphasis on engineering and scientific expertise was evident in a 1993 PriceWaterhouse survey. In that survey, 90 percent of respondents indicated that the objective of their environmental audits was to detect ecological violations before government inspectors detected them. Only 65 percent of respondents said that environmental audits included an assessment of their organisation's EMS (Tucker and Kasper, 1998).

Legitimacy theory and environmental auditing Nasi et al. (1997) contend that legitimacy theory provides a sound theory for interpreting how and why corporations deal with issues concerning the environment. Gray et al. (1995) implicitly support this contention in arguing that theories which attempt to explain corporate social and environmental responsibility within a systems-oriented view tend to provide more promising descriptive power. Within a systems-based perspective, it is assumed that the organisation is influenced by and, in turn, influences the society in which it operates. Thus, in the context of environmental management and auditing, the use of legitimacy theory allows us to

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focus on the relationship between organisations and society. Within such a context of both pursuing economic goals and fulfilling social and environmental responsibilities, an enterprise has a broad constituency. Recognising this fact is part of an enterprise's survival (Gray et al., 1995). Legitimacy theory arises from the presence of an implied social contract between an enterprise and its broad constituency in society. It is constituted by the expectations that are held by the community about the conduct of an enterprise. Donaldson and Dunfee (1994) posited three principles of ``micro social contracts'' as the foundation of interaction between organisations and society. First, local communities may specify ethical norms for their members through micro social contracts. Second, norms specifying micro social contracts are grounded in informed consent, buttressed by a right of exit. Finally, to be obligatory, a micro social contract must be compatible with hypernorms or widely acknowledged rights. Under legitimacy theory, the aim of an enterprise is to legitimise its behaviour by managing the perceptions of its constituencies (or stakeholders). Strategies which an enterprise can adopt for its legitimisation are: 1 seek to educate and inform its relevant publics about actual changes in the enterprise's performance and activities; and 2 seek to change the perceptions of the relevant publics without having to change its behaviour (Lindblom, 1994). We argue that ISO 14001 certification can provide the means by which either of the above strategies could be pursued. To identify which of these two strategies is emphasised by ISO 14001 certified entities, evidence is required about the extent to which EMSs and their audit (as established under ISO 14001 principles) have been operated as management tools to improve environmental performance or merely as credentials for public recognition purposes[1]. In the latter situation, while a corporation may obtain certification, it does not follow that its environmental performance improves. For management to know, or care, about whether its EMS is meeting its performance objectives, an effective internal environmental auditing function is essential. Evidence of a deficient environmental auditing function would be an indication that management emphasis is placed on the credentialism strategy rather



than the performance strategy for its legitimisation.


In this study, our first research question centres on the objectives behind EMS audits. While the main objective of environmental audits, prior to the ISO 14001 standard, was to detect violations of environmental laws and regulations (i.e. a compliance-based audit function), the present emphasis is on the auditing of systems. Such systems-oriented environmental audits should serve to shift the focus of management towards continuous improvement of environmental performance. The first research question is stated as follows: RQ1. Is it the objective of management, in establishing an internal environmental audit function under ISO 14001 certification, to ensure a commitment to the use of an EMS as an effective system for the pursuit of continuous improvement in environmental performance? Alternatively, is it the objective of management to keep an EMS in place for legitimacy reasons, essentially as an end in itself?

Generation of research questions

In relation to the engagement of environmental audit staff, the norm in a micro social contract with an ISO 14001certified site would be that the organisation would only engage audit staff whose levels of education and experience are commesurate with competencies expected under the ISO 14001 standard. In addition, it might be expected under a social contract that senior executive support will be provided within an audit committee framework. An effective EMS requires not only the support of qualified and skilled auditors, but also the commitment of top level management (Tucker and Kasper, 1998). The second research question, relating to support for and resourcing of EMS audits, is stated as follows: RQ2. Does management in ISO 14001certified entities commit sufficient resources to EMS audits, as might be expected by their stakeholders, in terms of: 1 the establishment of a generic audit committee for the entity and, if so, the seniority and expertise of committee members; 2 the budget allocated to EMS audit working hours; 3 the engagement of qualified and experienced EMS audit team members at the site level; and

4 the provision of training to EMS audit team members? A supplementary issue that arises from RQ2 is the extent to which financial auditing expertise versus environmental engineering expertise is deemed adequate to perform EMS audits. The Institute of Chartered Accountants in Australia's EATF emphasised that EMSs are part of an entity's management control systems, specifically designed to monitor environmental matters. Since the primary focus is systems and control, practising accountants are, therefore, well qualified to advise on such matters. Given that internal auditors (with an accounting background) are trained to identify risks and evaluate management systems and internal controls, it would follow that internal auditors have a major role to play in the audit of EMSs. While the accountancy profession may draw such a conclusion, it is an entity's management that decides the composition of the EMS audit team. Evidence of the extent of internal auditing expertise in the EMS audit team's profile is included in our study. A third research question generated in our study relates to the motivation behind Australian enterprises seeking ISO 14001 certification. Consistent with the theme of our study, we ask subjects about perceived benefits of their organisation having certification. Our purpose is to identify the extent to which benefits of self-interest to the organisation (e.g. gain an increase in competitiveness; improve the organisation's image) are more or less important than benefits to stakeholders (e.g. comply with customer requirements; improve environmental performance). The third research question is stated as follows: RQ3. How do perceived benefits of having ISO 14001 certification rank in terms of serving the organisation's selfinterests compared to the stakeholders interests?

Method Research instrument and sampling

The questionnaire developed for this study adapts some of its elements from instruments used in two prior studies: Campbell's (1995) study on the role of the internal auditor in environmental auditing, and Maltby's (1995) study of the difference between accounting and science/engineering sub-cultures in environmental audits. Specifically, our questions relating to the objectives of the environmental audit function are taken from Campbell's (1995) study, while our questions

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relating to audit fieldwork procedures used in environmental audits are taken from Maltby's (1995) study. The sample for our postal questionnaire distribution was drawn from the Joint Accreditation System of Australia and New Zealand's (JAS-ANZ) register of ISO 14001certified entities. JAS-ANZ is an association of the Australian and New Zealand Standards Association. As at November 1998, the JASANZ ISO 14001 register had 156 Australian certifications. This is not a reflection of the number of enterprises obtaining certification because the ISO only certifies specific sites. Some enterprises have certification for more than one of their plants, mines or other sites. Where an enterprise recorded multiple certified sites, only one site was selected for sampling in order to avoid the possibility of duplication of responses from any one enterprise where a common set of management motivations and policies might apply to multiple certified sites. This approach reduced the sample population to 84 subjects. The JAS-ANZ register contained the name of the nominated contact person at each certified site, and we mailed our questionnaire directly to that contact person.

Profile of respondents

Table I provides a profile of the 42 respondents, representing a 50 percent response rate. The demographics of the respondents appear to be representative of the demographics of the population in the JAS-ANZ register. A total of 76 percent of responses were from sites in environmentsensitive industries such as manufacturing

Table I Profile of respondents Type of position held at ISO certified site Internal audit manager/officer Quality control/Assurance manager/Officer Environmental manager/Officer Missing Total Sector of organisation Private sector Public sector Total Industry of organisation Manufacturing and construction Mining, oil & gas, chemical processing Services Utilities Total [ 416 ]

Frequency

Valid percentage

14 12 14 2

35.0 30.0 35.0 ±

42

100.0

27 15

64.3 35.7

42

100.0

16 9 10 7

38.1 21.4 23.8 16.7

42

100.0

and construction, mining, oil and gas, utilities and chemical processing. All of the ten (24 percent) respondents from services industries were also from public sector organisations. In terms of the position title held by respondents, there was a fairly even spread between `ìnternal audit'', ``quality control/assurance'' and `ènvironmental'' managers/officers.

Results and discussions Objectives of EMS audits (RQ1)

To address RQ1, we presented Campbell's (1995) five objectives of an internal environmental audit function to respondents. Table II presents the result that `àttesting a site's EMS has been properly maintained'' is rated the highest in importance of the objectives, followed by ``determining conformance of a site's EMS to internal audit criteria''. Such a result infers that the emphasis of site management is on keeping the EMS in place, for certification purposes, as an end in itself. On the other hand, the importance of the environmental audit objective of `ìdentifying areas for potential improvement in environmental results achieved through the site's EMS'' is the lowest rated. This result indicates a relatively weaker commitment of site management to ensuring that the EMS is achieving continuous improvement in environmental performance. To provide a clearer way of interpreting the results in Table II, a data reduction procedure was conducted by factor analysing the data for the five importance scales. Table III shows that two distinct factors emerge from this factor analysis. The three environmental audit objectives loading onto factor one suggest a concept of ``systems conformance and due process''. In contrast, the two environmental audit objectives loading onto factor two suggest a concept of `ènvironmental performance effectiveness''. From a legitigacy theory perspective, the results in Tables II and III can be interpreted as supporting the notion that the foremost purpose of the environmental audit function is to be a tool for the maintenance of the EMS certification credential. That is, it serves to maintain a public perception of good environmental management, without necessarily serving to change environmental performance. An alternative interpretation of Tables II and III is that the results appear to be consistent with environmental audits that were conducted pre-ISO 14001. As previously mentioned, in the past, environmental audits




Table II Objectives of the internal environmental audit function Importance (1-6 scale) Mean Min Max To attest that a site's EMS has been properly maintained

4.72

2

6

To determine conformance of a site's environmental management system (EMS) to internal audit criteria

4.21

2

6

To assess the soundness of site management's process of monitoring the EMS

3.97

2

6

To ensure the continuing effectiveness of the EMS in improving environmental performance

3.18

2

5

To identify areas for potential improvement in environmental results achieved through the site's EMS

3.15

1

5

Table III Varimax rotated factor matrix for the objectives of the internal environmental audit function Factor 1

Factor 2

Conformance of EMS to internal audit criteria Attest that EMS has been properly maintained Assess management's process of monitoring the EMS Identify areas for potential environmental improvement Ensure EMS effectiveness in achieving environmental performance

0.79623 0.64830 0.90766 ±0.12841 0.02023

0.21228 ±0.33573 ±0.13231 0.85014 0.88533

Eigenvalue Percentage of variance Cumulative percentage variance

2.0694 41.4 41.4

1.5074 30.1 71.5

were undertaken primarily to ensure compliance with local environmental regulations. Campbell and Byington's (1995), for example, found that organisations were inclined to undertake environmental audits using a inspection approach in order to verify compliance by their organisation with the technical requirements of environmental protection regulations. It is possible that, while the approach to environmental systems management would have changed in the post-ISO 14001 period, the approach to environmental auditing may have been substantially retained from the pre-ISO 14001 period.

Resources committed to the EMS audit (RQ2)

To address RQ2, relating to the issue of whether ISO 14001-certified entities commit sufficient resources and senior management attention to EMS audits, several pieces of evidence can be provided. This evidence relates to audit committees, budgets, qualifications, experience and training of the EMS audit team. Audit committees. Top management inspection is necessary to give the EMS credibility and to reinforce its diligent operations (Lally, 1998). The composition and activities of the enterprise's audit committee

can provide some indication of the extent of top management participation in, or commitment to, the environmental auditing function. The absence of an audit committee would, to some extent, infer a lack of senior management commitment. This inference is based on the assumption that generic audit committees give attention to environmental auditing amongst their several areas of interest revolving around corporate governance. This may not always be the case. As shown in Table IV, only 51 percent of those who responded said their organisation had an audit committee. While there is limited support for audit committees, organisations with these committees have a consistently high representation of both top management and the organisation's internal audit manager. Further, as revealed in Table IV, the average size of audit committees is 5.19 members, and an internal audit manager is respresented in every case. In 40 percent of cases the internal audit manager comprises 25 percent or more of the membership of the commitee. This should give some assurance that, in organisations that have an audit committee, the committee has the numbers, and internal audit specialist, to devote some of its attention to the environmental audit function. The budget for the EMS audit function. Table IV also reports the amount budgeted for environmental auditing work as a percentage of the total internal audit function at the site level. It reveals that 71.1 percent of sites devote less than 50 percent of their internal audit budget to EMS audit hours. Of these, 28.9 percent devote 25 percent or less to EMS audit hours. The impression from the budget results in Table IV is that there is not much internal audit budget set aside for direct hours of EMS audit work at a high proportion of ISO-14001certified organisations. While some of the sampled sites will, by nature, face lower environmental risk than others, all sites on

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the JAS-ANZ ISO 14001 register are believed to have material EMS audit needs. Qualifications, experience and training. The qualifications, experience and training of those appointed to the internal auditor team at the ISO 14000-certified sites are given in Table V. The results in Table V concerning qualifications should be interpreted against ISO 14012 ``Guidelines for environmental auditing-qualification criteria for environmental auditors''. Although the ISO 14012 guidelines are not mandatory, it could be expected from a stakeholder's perspective, that a certified organisation would require its EMS audit team members to meet such qualification and experience criteria. ISO 14012 expects internal environmental auditors to have at least a secondary education with five years of experience or a degree and four years of experience. For non-degree holders, the experience requirement may be reduced by up to one year; for degree holders it may be

Table IV Support for the internal auditing (including environmental audit) function Audit committee (at central level) Existence of an audit committee: Yes No Missing Total Types of audit committee members (for the 21 existing committees in the sample): CEO Other top executives/ directors Internal audit manager Other Total (Mean size of audit committee = 5.19 members) Internal audit manager as a percentage of the size of audit committee membership: Nil Less than 25 25 > 50 50 or more Total EMS audit budget (at the ISO 14000-certified site level) Estimated percentage of the total internal audit budget used for environmental audit work hours: 25 or less 25 > 50 50 or more Missing Total [ 418 ]

Frequency

Valid (%)

21 20 1 42

51.2 48.8 ± 100.0

10 47

9.2 43.2

20 32 109

18.3 29.4 100.1

0 12 5 3 20

0.0 60.0 25.0 15.0 100.0

reduced by up to two years. This reduction is permitted if an incumbent undertakes recognised studies in five strategic areas: environmental science and technology, technical and environmental aspects of facility operations, environmental laws and regulations, environmental management systems and standards or audit procedures, processes and techniques. In addition, under ISO 14012, EMS auditors are expected to complete on-the-job training totalling 20 working days (or four audits) on environmental audits, prior to recognition as an environmental auditor. For promotion to lead-auditor, there must be an additional 15 working days (on not less than three audits). If EMS audit team members are well underqualified or under-experienced in terms of the ISO14012 criteria, then an organisation could not ostensibly demonstrate an intention to maintain an effective EMS or to be able to effectively monitor environmental performance improvements. As shown in Table V, almost half (19 organisations or 47.5 percent) indicated that the leader of their EMS audit team did not have a higher education. Looking at the other members of the audit team, we find the percentage of auditors without a tertiary education to be much higher. There were 28 organisations (70 percent) for which the highest qualification of the audit team members (other than the leader) was a secondary education[2]. Turning to environmental audit experience, Table V shows that the leader of the audit team averaged only 1.85 years in internal environmental audit services, while the other members in the audit team averaged 1.33 years. These results do not compare favourably with the recommendations for length of experience outlined in the ISO 14012 standard. Finally, Table V gives evidence of training undertaken by members of the EMS audit team. Of particular note is the extent of formal on-the-job training after their appointment to an EMS team. The results fall well short of the 20 working days of on-the-job training recommended in ISO 14012. There was 22.5 percent of respondents reporting they had no training, and 92.5 percent reporting they had ten days or less of training.

The discipline of EMS audit team members

11 16 11 4 42

28.9 42.2 28.9 ± 100.0

As raised earlier, a supplementary issue is the extent to which financial auditing knowledge versus environmental engineering knowledge is deemed adequate to perform EMS audits. The intention of ISO 14001 is that EMSs are to be part of an




entity's planning and control system's devices, specifically designed to monitor environmental matters. With a focus on systems design and monitoring, accountingqualified internal auditors can play a major role. Table VI reveals that 34 percent (52) were said to be accountants, 56 percent (85) were said to be engineers, scientists and health and safety inspectors and the balance of 10 percent (14) were in the `òther'' category, representing systems analysts, economists and administrators. It should be noted that

Table V Qualifications, experience and training of those appointed to an internal auditing team at an ISO 14000 certified site Educational level

Frequency

Valid (%)

Education level of the leader of the site's audit team: No higher education 19 Diploma 1 Bachelor degree 17 Master or PhD degree 3 Missing 2 Total 42 Education level of all others in the audit team: No higher education 77 Diploma 4 Bachelor degree 22 Master or PhD degree 0 Missing 6 Total 109 Relevant experience

Mean

Number of years of accumulated audit experience: Internal audit services experience of ± (a) the leader of the team 2.46 (b) other team members on average 1.74 Internal environmental audit services experience of ± (a) the leader of the team 1.85 (b) other team members on average 1.33

Environmental audit training

Frequency

47.5 2.5 42.5 7.5 100.0 74.7 3.9 21.4 0.0

respondents were asked about EMS audit team members' ``disciplines'', not their formal qualifications. It would seem that our results did not support Tucker and Kasper's (1998) contention that, since EMS auditors will be auditing a system, the audit team would tend to include fewer scientists and engineers and more (accounting-oriented) internal auditors. They were of the opinion that internal auditors were better trained to identify risks, evaluate management systems and internal controls and value the company's environmental costs and obligations. Findings are also given in Table VI about the frequency of use of internal audit procedures at ISO 14001-certified sites. While this list covers internal auditing procedures generally, rather than procedures unique to environmental auditing, it does add evidence of relevance to an element of the debate about the use of accountants versus engineers/scientists in carrying out EMS audits. It shows that amongst the most frequently used audit fieldwork procedures used at ISO 14001-certified sites are traditional (accounting-based) auditing procedures ± viz., systems' documentation, processes observations and record-keeping accuracy tests.

Perceived benefits of having ISO 14001certification (RQ3)

100.0 Min

Max

Std Dev

1 1

4 4

1.05 0.82

1 1

4 2

0.93 0.48 Valid (%)

Number of training programmes (in audit procedures/practices or environmental law or engineering/science) completed prior to being appointed as a member of an ISO 14001certified site's IA team: Nil 7 17.5 1 11 27.5 2 19 47.5 3 3 7.5 Missing 2 Total 42 100.0 Number of days formal on-the-job training after appointment to work on an environmental audit: Nil 9 22.5 1 > 5 days 16 40.0 5 ± 10 days 12 30.0 10 or more 3 7.5 Missing 2 Total 42 100.0

Our third research question, about the manifestation of legitimacy theory in the behaviour of enterprises with ISO 14001certified sites, focuses on the motivation behind having certification. As previously discussed, legitimacy theory supports the notion that it is important for enterprises to be seen to satisfy specific societal norms. Maintenance of ISO 14001 certification, a highly visible credential, can help the enterprise keep a desired public image about its environmental performance. Our empirical investigation here focuses on the extent to which enterprises give importance to the use of an EMS for their own self-benefit (including image building) compared to the importance of generating benefits for its environmentally-interested stakeholders. Table VII gives results of respondents' beliefs about the degree of importance placed by their enterprise on alternative types of benefits arising from the site's maintenance of ISO 14001 certification. ``Gaining an increase in competitiveness'' is cited as the most important benefit. A gain in competitiveness might be reflected in a general improvement in public recognition which certification can bring, or it might be

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Table VI Audit teams and audit fieldwork procedures used at ISO 14000-certified sites Disciplines of members

Membership per EMS audit team Mean Std dev Min Max

Sum

Size and composition of EMS audit team Accountants/auditors Engineers, scientists and health & safety officers Others (e.g., systems analysts, economists, administrators) Average size of an EMS audit team

1.54 2.49 0.41 4.44

52 85 14 151

Types of procedures

Frequency of use of procedure High Medium Low Mean

Internal audit fieldwork procedures used Documentation of site's systems Observation of site procedures Interviewing of site's staff Testing accuracy of site's record keeping system Interviewing of site's management Completion of internal control questionnaire Testing with use of sampling techniques Table VII Perceived benefits from ISO 14000 certification

4.95 4.68 4.49 4.15 3.02 2.95

2 1 2 2 2 1

6 6 6 6 5 5

specifically linked to a growing trend towards major corporate customers insisting on dealing only with ISO 14001-certified suppliers. For example, Franklins, an Australian supermarket chain, responded to a campaign by shoppers to cut the distribution of plastic bags by introducing bio-regradable bags and seeking ISO 14001 certification (Retail World, 1997). For businesses in Australia, however, the effect of gaining ISO 14001 certification on competitiveness seems to be refuted by our finding that low importance is given to the benefit of being able to ``comply with customer requirements''. The second most important benefit shown in Table VII is `ìmprovement in the organisation's image''. These two highest rated benefits suggest that the motivation of creating the desired perception to stakeholders (i.e., the central theme of legitimacy theory behaviour), as well as the motivation of enterprise self-gain, are the most important drivers of ISO 14001certification. `Ìmpove environmental performance'' is cited as the least important benefit to the enterprise of maintaining an ISO 14001-certified site.

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7 13 10 11 11 12 11

0 0 0 1

0 0 3 5 7 13 18

5 9 2 11

2.82 2.67 2.60 2.47 2.21 1.91 1.66

Conclusions

Importance (1-6 scale) Mean Min Max Gain increase in competitiveness Improve the organisation's image Reduce the potential for legal liability Establish systems that help cost efficiencies Comply with customer requirements Improve environmental performance

32 26 27 24 21 10 6

1.08 2.18 1.23 2.12

Conclusions to be drawn are to be treated with caution because the results in this study are subject to limitations. The small population of 84 enterprises with ISO 14001certified sites in Australia and their short history of no more than four years as certified sites, makes this study an exploratory one of an emerging practice. The small population, coupled with a 50 percent response rate, has meant that the database from our questionnaire is not very conducive to parametric data analysis. Descriptive data analysis has mainly been used. Underlying the descriptive data results are limitations inherent in the fact that our questionnaire required respondents to self-report facts and perceptions. While we checked the data and found no respondent with an unusual response pattern (e.g. a column of identical responses or a repetitive zig-zag pattern of responses), it remains that some responses are likely to be subject to biases from leniency, range restriction and halo effects. Further, subjects sampled were those officially nominated by their enterprise as the environmental auditing contact person on the JAS-ANZ register of ISO 14001certified sites. Some may have had a tendency to convey the virtues of their site's certification. Bearing in mind the limitations of our data and taking a legitimacy theory perspective, our results do consistently point to a common conclusion about the way enterprises are using ISO 14001 certification to handle stakeholders. This conclusion is that, during the emerging years of ISO 14000, enterprises in environmentally sensitive industries in




Australia have focused on environmental credentialism. The evidence suggests that these enterprises tend to regard the credential of certification as the key factor required in order to satisfy their stakeholders that they are meeting their implicit social contractual obligation to manage the environmental effects of their operations. Our findings tend to support Lindblom's (1994) argument that enterprises, in their process of legitimization of their environmental performance, adopt strategies that seek to change the perceptions of relevant publics without having to change those enterprises' environmental behaviour. Evidence about the objectives, resourcing and conduct of an enterprise's EMS audit function give an indication of the extent to which this legitimization strategy has been adopted to date. We find, first, that the highest rated objectives of the EMS audit function are concerned with ``systems conformance and due process'', whereas the lowest rated are concerned with `ènvironmental performance effectiveness''. Such a result, we contend, infers that the emphasis of site management is on keeping the EMS in place, for certification purposes, as an end in itself. Second, we find that the resources committed to EMS auditing are below reasonable levels in the areas of budgets, qualifications, experience and training of EMS audit team members. In relation budgets, over 70 percent of sites devoted less than 50 percent of their internal audit budget to their site's EMS audit work hours. In terms of qualifications, almost half of the respondents indicated that the leader of their EMS audit team did not have a degree, and 70 percent of other members of the audit team were without a tertiary education. Further, environmental audit work experience and continuing training was found to be, on average, well below the recommendations for length of experience and training outlined in the ISO 14012 standard. These results suggest that enterprises do not provide sufficient human and financial resources to their EMS audit function for it to fulfill a role of evaluating and developing improvements in systems of enviromental management and performance. Rather, resourcing seems to be aimed, at best, at the maintenance of ISO 14000 compliance requirements. Because the ISO 14000 series of standards has only existed since late 1996[3], we may have collected our data about the resourcing of EMS audits (and therefore our conclusions) somewhat prematurely. Prior to ISO 14001, environmental auditing provided limited scope for the skills of accounting-

qualified internal auditors. Having recently gained ISO 14001 certification, many enterprises in Australia may still be planning a phase-in to their EMS audit teams of more qualified internal auditors with information systems experience. A final piece of evidence that supports legitimacy theory relates to the perceived benefits of establishing an EMS and ISO 14001 certification. Results show that respondents perceive enterprise-self-interest (i.e. ``gaining an increase in competitiveness'' and `ìmproving the organisation's image'') as the most important type of benefit arising from their site's certification. The benefit of `ìmpoving environmental performance'' is cited as the least important to arise from maintaining an ISO 14001-certified site. This latter result may not necessarily mean that Australian enterprises are disinterested in improving their environmental performance. Rather, there could exist a phenomenon similar to that identified by Boiral and Sala (1998) in a case study of a certified plant in Canada. They found that ISO 14001 certification proved to be an encumbrance to managers' effectiveness in improving environmental performance because it consisted of extensive documentation and bureauracy associated with written rules to be adopted by all site-level employees. Such EMS methods were seen by plant managers as having mainly superficial effects on the improvement of the quality of environmental performance. The plant managers continued to pursue their own environmental improvement targets through their own previously developed engineering-oriented methods. Over the next few years, as more enterprises gain experience with ISO 14000 standards, more research is needed into whether ISO 14001-certified EMSs and associated environmental audits will become effective tools for environmental performance improvement. In the ISO 14001 start-up phase, however, our study points to the fact that enterprises are being driven by a belief in the legitimizing influence on their stakeholders of holding the credential of ISO 14001 certification.

Notes

1 A parallel to this type of evidence is a scheme in the UK called ``The Investors in People Scheme'' which is concerned with identifying companies with a poor record relating to human resources. 2 An unanswered empirical question is the extent to which internal auditors'

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Dennis W. Taylor, Maliah Sulaiman and Michael Sheahan Auditing of environmental management systems: a legitimacy theory perspective Managerial Auditing Journal 16/7 [2001] 411±422

qualifications are positively associated with the quality of EMS audit work. 3 The earlier British standards on environmental management which preceded the ISO 14000 series did not have any known influence on practices in Australian organizations.

References


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Further reading

Adams, C.A. and Roberts, C.B. (1995), ``Corporate ethics: an issue worthy of report?'', Accounting Forum, Vol. 19 Nos 2/3, pp. 129-41. Australian Society of CPAs/Institute of Chartered Accountants in Australia (1998), AASB Statement, `Èxplanatory framework for guidance on audit and audit-related services'', Auditing Handbook, Prentice Hall, Sydney. Internal Auditor (1997), `ÈAR focus group target ISO 14000'', Internal Auditor, Vol. 54 No. 3, p. 8. Tilton, H. (1996), ``The dawn of ISO 14000'', Quality, April, pp. 5-6.


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