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RE: Corporate Pollution Prevention Financial Auditing


You raise some interesting points but I think it's much more complex than
just a conflict of interest for the auditing firm. It is my understanding
that environmental liability does not have to be reported unless there is a
reasonable estimate of the cost. Once a cost estimate has been established,
then this cost must be reported to the SEC and the company must secure
funding to cover cleanup costs.

This creates a major paradox. One company can stick it's head in the sand
and operate for years with some unknown liability "out there." If they never
establish what their liability is, then they don't need to report and set
aside cleanup funds. Another company can spend money to study their options
and to establish what their future liability might be. For this effort, they
get hit with a major operating expense that can put them out of business.

When it comes to P2, I would guess none of this would apply. Is it your
contention that companies should report how much they could save if they
would invest a little more? The issue of auditing and liability reporting
seems to be much more intended for cleanup programs. I will be interested in
hearing what others say about this subject since it is one that is often



-----Original Message-----
From: Donald Sutherland
Sent: Wednesday, December 06, 2000 7:01 AM
To: p2tech@great-lakes.net
Subject: Corporate Pollution Prevention Financial Auditing


I would like to submit to the listservice my letter to the EPA and report on
financial environmental accounting in the US for your review.

Can corporate pollution prevention measures be financially audited to give a
opinion to the public under the current US auditing system?

And if not, does that undermine corporate pollution prevention initiatives

I believe it does.

What are your thoughts?

Best Wishes,
Donald Sutherland

January 14, 1998

Michael M. Stahl
Deputy Assistant Administrator
Office of Enforcement and Compliance Assurance
U.S.Environmental Protection Agency

Dear Michael M. Stahl,
As a participant in the National Performance Measures Strategy
and a member of the U.S.EPA's Environmental Accounting Project I feel the
EPA is overtly avoiding the issues and controversies of external financial
environmental accounting and auditing in the U.S.

Here is the first part of my commentary on the SEC's policy of
confidentiality for internal environmental audits of publicly traded
companies and the lack of enforcement of federal environmental disclosure
laws as stated in the SEC's regulation S-K.

External codified environmental financial accounting tends to be an avoided
topic in both the EPA and among environmental groups, but I think it's an
important issue to complement all dialogue on establishing performance
indicators and implementing an enhanced set of performance measures for
EPA's enforcement and compliance assurance program.

An uniformly enforced environmental accounting field will give financial
gravity to due dilligence to our nation's environmental laws.

I look forward to your commentary and continuing this dialogue with the EPA.

Best Wishes,
Donald Sutherland
Consultant on Environmental Management Systems
email: donaldsutherland-iso14000@worldnet.att.net

Can the Fox Watch the Hen House?
By Donald Sutherland

Is the fox watching the hen house?

That's a question government officials are asking in reviewing the potential
for corporations to buy favorable (environmental) financial reports from the
auditing accounting industry they pay to consult.

The same accounting industry which the U.S.Securities and Exchange
Commission (SEC) relies on to create and enforce national environmental
generally accepted accounting principles (GAAP).

In December 1996, SEC Chairman Arthur Levitt warned the accounting industry
against expanding consulting practice with the same companies they audit.

Addressing the American Institute of Certified Public Accountants at a
national conference in Washington,D.C., Levitt cited two private sector
studies on the growing trend of conflict of interest in the accounting
industry's consulting and auditing practice weakening quality of financial
reporting to stakeholders.

In February 1997, three environmental groups (Friends of the Earth, Sierra
Club, and Citizen Action) sent a letter to the SEC, demanding an
investigation of the entertainment giant Viacom Inc. for failing to report
an alleged $300 million in superfund clean up liabilities in their annual
report to shareholders.

Price Waterhouse LLP, who audited Viacom's annual report also issued a clean
opinion for Viacom's financial report to shareholders minus the questionable
superfund liability figures.

Did Price Waterhouse LLP as consultant and auditor to Viacom Inc. do
anything wrong and is there a conflict of interest?

Price Waterhouse has no comment.

The SEC has no comment.

Under federal disclosure laws and the SEC's Regulation S-K, all publicly
traded firms are required to annually file significant environmental
material expenses on a 10-K form to stakeholders, and all Superfund
liabilities must be accrued and disclosed if they are estimated to be over

Accounting analysts citing there is more profit in consulting than auditing
say Price Waterhouse departed from GAAP and SEC 10-K environmental reporting
requirements to minimized their client's (Viacom) volatility rating.

On May 21, 1997 the SEC and the American Institute of Certified Public
Accountants (AICPA) announced the formation of a new private-sector auditing
body to establish independent standards for the auditors of public

Already critics are charging the SEC's Independent Standards Board (ISB)
majority makeup of accounting bodies
profiting from conflict of interest relationships in consulting and auditing
will bias rulings to allow departure of significant environmental material

Representatives of state boards of accounting claim that while the SEC still
has juristictional authority over ISB, the Big Six accounting firms are
manuevering to take over SEC auditing operations using the new SEC board and

"It's no secret the Big Six, financially carry AICPA and the Financial
Accounting Standards Board (FASB)" says Jay J. Church, Executive Director of
the New Jersey State Board of Accountancy.

"These organizations are being used by the Big Six to manuever in state
government bodies to replace the SEC's auditing authority," he says.

Greg Newington, Chief of Enforcement for the California State Board of
Accountancy, notes there is a strong lobby effort by the accounting industry
to reverse the state legislation which prevents licensees from taking fees
in cases involving conflict of interest with a client.

"There's a lot of money at stake here," he says.

Of the $11.2 billion in global assets for Anderson Worldwide more than half
are coming from consulting, and Anderson Consulting is positioning to
separate from the accounting unit.

With the proposed mergers of KPMG Peat Marwick/ Ernst & Young and Price
Waterhouse/Coopers & Lybrand, over fifty four percent of all publicly traded
U.S. companies will be audited and consulted by the two firms.

Government officials fear the growth of consulting contracts are tainting
quality financial reporting, particularly with auditing assets down to just
42% of the total revenue for the Big Six (soon to be Four) accounting firms.

"It's not only the Big Six, the situation is rampant through the whole
accounting profession," said David Costello, President of the National
Association of State Boards of Accountancy (NASBA).

"The fact is if you are doing an audit of a firm for a $300,000 fee and you
have a consulting contract with the same firm for $1 million it's hard to
see how you can maintain being independent with that audit," he says.

Costello also comments that state boards are helpless in their efforts to
combat the accounting industry in challenging cases of conflict of interest.

"We don't have the resources to challenge Anderson or a Big Six firm,
particularly if we have to go against an independent auditing board half
comprised from the Big Six."

AICPA even admits its working to take over the SEC's auditing operations.

"I wouldn't put it in so strong a wording as that, but we are preparing to
absorb more of the SEC's auditing authority," says Catherine Zita, Technical
Manager of the Profession Ethics Division of AICPA.

"AICPA resents being overriden by the SEC's regulations," she says.

A spokesman for the SEC's Division of Corporate Finance admits the
Commission is heavily reliant on AICPA and FASB to enforce auditing because
of the limitations of the Commission's operating budget and small staff

And that includes enforcement of environmental financial audits.

So, with Price Waterhouse on both the new SEC independent standards board
and the Board of AICPA many industry analysts feel the chances of Viacom
being forced anytime soon to disclose its' Superfund liabilities in an audit
are slim.

"Not very likely," says Martin Freedman, professor at the School of
Management at the State University in New York in Binghamton, "and Viacom's
Superfund departure is not unusual".

"My 1996 study of the Environmental Protection Agency's list of 900 publicly
traded potentially responsible parties listed on the National Priority List
found most companies make little or no disclosure effort on environmental
expense/liability reporting," he says, "and it's getting more and more

(c)Donald Sutherland 1998