Understanding Compliance Audit Cost: Factors Influencing the Price of EHS Audits

Jonathan Brun

Environmental Health and Safety (EHS) compliance audits ensure workplace safety, environmental protection and regulatory compliance. However, many companies are hesitant to undergo these audits due to concerns about the cost. So, how much does an EHS compliance audit cost, and what factors affect the price?

There’s no simple answer, as several variables can impact the cost of an EHS compliance audit. A facility’s complexity and size, the audit’s scope, and the auditor’s qualifications will affect the final cost.

In this article, we delve into the variables that can affect the cost of an EHS compliance audit and provide some insight into what you can expect to pay for this critical service.

Types of EHS Audits and their Compliance Standards Scope

Before we delve into the factors that influence the cost of EHS audits, it is essential to understand the various types of audits your organization may require, each with its specific compliance standards scope.

EHS Compliance Audit

During a compliance audit, an auditor will review documentation, interview employees, and inspect the company’s facilities and operations to ensure they comply with relevant laws and regulations. This audit will review both Environmental and Safety compliance as the two topics are often intertwined. An EHS compliance audit will include reviewing permits, safety data sheets, training records, and other documentation.

If the auditor identifies any areas of non-compliance, they will create “findings” that outline the compliance gap. Some auditors may make recommendations for corrective actions that the company should take to address the issues or request that the company and its staff identify the corrective actions themselves. These recommendations may include implementing new policies or procedures, providing additional employee training, or physically changing the facilities with new equipment and layout modifications.

Safety Compliance Audit

In a safety audit, the goal is to ensure the workplace is safe for employees and visitors.

Auditors will review safety policies and procedures, inspect equipment and facilities, and interview employees. They will also look for potential hazards such as fire, electrical, and chemical and assess the effectiveness of safety measures. A safety audit is not necessarily a compliance audit. You can audit your safety program against best practices or corporate requirements, without necessarily looking at the local regulations.

Environmental Compliance Audit

This type of audit process aims to ensure that a company is following environmental regulations, reducing its environmental impact, and identifying opportunities for improvement.

An environmental audit evaluates a company’s environmental practices, policies, and procedures. It does need to be a compliance audit as you can audit against best practices or corporate policies. It can include reviewing permits and regulatory compliance, assessing waste management practices, evaluating air and water quality, and examining energy usage. The auditors will also investigate environmental incidents or complaints and assess the company’s response and corrective actions.

What Happens if I don’t Comply?

Non-compliance with environmental, health, and safety regulations can result in financial penalties, hidden costs and consequences in the long run. Here are a few negative impacts of non-compliance on organizations and individuals:

  • Worker Injury and illness isa common consequence of failing to comply with EHS. In 2021, the United States recorded 5,190 fatal work injuries, an increase of 8.9 percent from 4,764 in 2020. Safety-related accidents cause a significant portion of this.
  • Fines, penalties and sanctions Penalties will depend on the type and severity of the violation. Across most jurisdictions, fines continue to increase in size and volume. 
  • Civil lawsuits or criminal charges – Violations may lead to either civil or criminal charges, which can have financial implications and impact company assets and resources, potentially resulting in operational changes. More and more jurisdictions are holding management and directors of corporations liable for environmental and health and safety non-compliance.
  • Increase in employee turnover – A workplace with a poor safety record can be challenging to recruit and retain top talent, leading to high turnover and associated costs.
  • Reputational damage – Non-compliance can result in media grilling, negative public opinion, and pressure group attention.Increase in insurance premium – A higher number of incidents and accidents can increase the cost of workers’ compensation insurance.
  • Threats to the environment – EHS also prioritizes the protection of the environment, and failure to follow its protocols could result in greater environmental damage.

Which EHS Audits are the Most Important?

It can be argued that all regulations hold equal importance in maintaining a safe working environment. However, navigating all the compliance standards and scope of EHS regulations can be overwhelming.

Nonetheless, the International Finance Corporation (IFC) has published updated recommendations for EHS implementation across all industries.

Environmental – These are various environmental factors that businesses must be aware of and continuously observe.

  • Air Emissions and Ambient Air Quality
  • Energy Conservation
  • Wastewater and Ambient Water Quality
  • Water Conservation
  • Hazardous Materials Management
  • Waste Management
  • Noise
  • Contaminated Land

Occupational Health and Safety – It includes all the health and safety hazards related to the operation of the business, its production, and its facilities.

  • General Facility Design and Operation
  • Communication and Training
  • Physical Hazards
  • Chemical Hazards
  • Biological Hazards
  • Radiological Hazards
  • Personal Protective Equipment (PPE)
  • Special Hazard Environments
  • Monitoring

Community Health and Safety – These are all the health and safety factors and responsibilities applicable to communities:

  • Water Quality and Availability
  • Structural Safety of Project Infrastructure
  • Life and Fire Safety (L&FS)
  • Traffic Safety
  • Transport of Hazardous Materials
  • Disease Prevention
  • Emergency Preparedness and Response

While each component serves its purpose, some may impact your business more than others. Ultimately, the answer will depend on the scope of your business and the nature of your operations. For example, suppose your business involves the handling of hazardous materials or the production of heavy machinery. In that case, you should prioritize compliance to regulations related to these business activities.

Which Regulations Cause the Most Problems?

Each country has its own set of regulations and the application of those requirements varies in each jurisdiction. Every year, the United States Occupational Safety and Health Administration (OSHA) releases an annual list of the most frequently cited safety standards violations based on worksite inspections. The list aims to inform employers and safety professionals about common violations and promote prevention.

Below are the top 10 safety compliance violations for 2022.

  1. Fall Protection, construction (29 CFR 1926.501) – 5,260 violations
  2. Hazard Communication, general industry (29 CFR 1910.1200) – 2,424 violations
  3. Respiratory Protection, general industry (29 CFR 1910.134) – 2,185 violations
  4. Ladders, construction (29 CFR 1926.1053) – 2,143 violations
  5. Scaffolding, construction (29 CFR 1926.451) – 2,058 violations
  6. Control of Hazardous Energy (lockout/tagout), general industry (29 CFR 1910.147) – 1,977 violations
  7. Powered Industrial Trucks, general industry (29 CFR 1910.178) – 1,749 violations
  8. Fall Protection Training, construction (29 CFR 1926.503) – 1,556 violations
  9. Eye and Face Protection, construction (29 CFR 1926.102) – 1,401 violations
  10. Machinery and Machine Guarding, general industry (29 CFR 1910.212) – 1,370 violations

The Impact of Covid-19

The Covid-19 pandemic has severely impacted businesses worldwide. With many offices closing and shifting towards remote work, audit programs of organizations have looked a little different. Auditors also had to change their approach, scope, and timing of their tests, resulting in higher audit fees and long delays in completing audit engagements.

Moreover, the pandemic has highlighted the need for greater transparency and accountability. Nowadays, auditors must identify non-compliance issues and give guidance on resolving them in a rapidly changing business environment. It has led to an increase in the level of expertise required of auditors, contributing to higher costs.

So, How Much is the Actual Cost?

Many businesses are eager to comply with regulatory compliance, but the question of cost is always on the table. However, the actual cost of an EHS compliance audit  is not the same across all organizations. Depending on the type of audit, the size and complexity of your operation, and other factors, compliance prices can range anywhere from $6,000 to $20,000 for a regulatory EHS compliance audit. And an ISO certification compliance audit can easily reach between $10,000 to $20,000.

How to Gain Maximum Value from Compliance Audits?

A compliance audit is not just about ticking boxes and meeting regulatory requirements. It can provide an excellent opportunity to gain maximum value for your business. To maximize your compliance audit, follow these tips:

  • Focus on improvement – A ‘check-the-box’ approach doesn’t benefit the organization. Instead, a mature approach involves comprehending the business, inquiring appropriately, and proposing improved methods. It may entail suggesting policies, procedures, escalation processes, training, and other recommendations.
  • Utilize data analytics – Analytical tools can help identify exceptions and reduce the duration of sample testing. Additionally, these tools can aid an organization in enhancing data quality and system improvements.
  • Identify the root cause – Conducting a root cause analysis can identify systemic issues affecting various aspects of a business. It enables more efficient solutions that address the underlying problem rather than solely treating the symptoms.
  • Take a learning-oriented approach – By adopting an educational approach; businesses can use audits to improve operations and compliance practices. It involves ensuring that all employees comprehend compliance audits’ purpose and responsibilities. Training sessions, workshops, and transparent communication from management can help achieve this.
  • Take a broad view – Compliance audits should cover related activities such as records management, accounts payable, system user access, and health and safety. Even though these may not be the primary focus of the audit, a proficient auditor will ensure that systems and processes comply with best practices.
  • Create internal capacity – Compliance and continuous improvement should be an ongoing focus, not just an annual event. Invest in developing internal audit teams and leverage technology to manage compliance. It can eventually lead to cost savings.
  • Utilize technology – Leveraging technology can help companies minimize the time and effort needed to prepare for an audit, allowing employees to focus on the core business. Additionally, automated systems help streamline audit processes and reduce the chance of errors.

Understanding Regulatory Requirements Compliance Price: Factors Affecting the Cost of EHS Compliance Audits

There might be a question in your mind as to why EHS compliance costs are so high. Below are some of the key factors to consider. By understanding these factors, including regulatory requirements compliance price, organizations can better evaluate and plan for their EHS compliance costs, ensuring a proactive approach to environmental, health, and safety management.

The cost of an EHS compliance audit varies depending on several variables, including the complexity and size of the facility, the scope of the audit, and the qualifications of the auditor. Different types of audits, such as EHS compliance, safety compliance, and environmental compliance audits, are discussed, along with their respective focuses and objectives.

Size and Complexity of the Organization

Larger organizations with high risk activities, multiple facilities, operations, and employees will likely incur higher compliance costs than smaller organizations with fewer facilities and employees. Managing EHS compliance may require more staff or outside consultants for larger companies, while smaller organizations may manage it with their existing resources.

The complexity of an organization’s operations can also impact its compliance costs. For example, companies operating in highly regulated industries such as chemical manufacturing or oil and gas exploration will likely face more stringent compliance requirements than those in less regulated industries.

Type of Audit and Level of Detail Required

Depending on the scope of the audit, there may be a need for extensive data collection, analysis, and reporting. It can require significant resources, including personnel time and specialized software.

For example, a compliance audit that covers a broad range of environmental, health, and safety regulations may require more data collection and analysis than a narrow audit focused on a specific area. Similarly, a comprehensive audit that covers multiple facilities will require more resources than a single-site audit.

Qualifications or Specialization Needed for the Auditor

When conducting EHS compliance audits, having a qualified and specialized auditor on board is essential. An EHS auditor must deeply understand the regulations and standards governing environmental, health, and safety compliance in your industry and jurisdiction. Furthermore, they should thoroughly understand the company’s operations and specific industries.

The presence of an experienced and qualified EHS auditor can help minimize compliance costs by preventing potential problems from spiraling into costly issues.

Location of the Audit Site

The geographical location of the company’s site can affect EHS compliance costs due to variations in regulations and standards across different countries, states, provinces and cities.

For example, a company operating in multiple countries must  comply with different regulations and standards in each location. This will result in additional compliance costs, and there may be a  need to hire local consultants or legal experts to ensure they meet each location’s requirements.

Similarly, if a company operates in a state or city with stricter EHS regulations than others, it may incur higher compliance costs. It can include investing in new equipment or technology to meet the requirements and hiring additional staff or consultants to ensure compliance.

Frequency of the Audit

Regulatory requirements may determine the frequency of audits, but most companies will set their audit schedule based on corporate policy or requirements in their management systems. Companies may conduct audits more frequently to maintain a higher level of compliance or identify potential issues before they become problematic. Frequent audits may require more resources, including personnel, time, and money, but frequent audits should be smoother as there will, in theory, be less compliance issues to address

On the other hand, less frequent audits may lead to non-compliance issues going unnoticed, resulting in fines, legal actions, and reputational damage. Therefore, finding the right balance between the frequency of audits and the associated costs is crucial for companies to maintain compliance with EHS regulations while managing costs effectively.

Strategies for Maximizing Value from Compliance Audits

1. Focus on Improvement: Compliance audits should not be mere checklists but opportunities for improvement. Adopt a proactive approach by comprehending the business, asking relevant questions, and proposing improved methods. Recommendations can include policies, procedures, training, and escalation processes, enabling continuous enhancement.

2. Utilize Data Analytics: Leverage data analytics tools to identify exceptions, reduce sample testing duration, and enhance data quality and system improvements. Analytical insights can help streamline compliance processes, detect patterns, and identify areas for targeted improvements.

3. Identify Root Causes: Conducting root cause analysis helps identify systemic issues impacting various aspects of the business. By addressing underlying problems rather than treating symptoms, organizations can implement efficient and effective solutions to enhance compliance practices.

4. Take a Learning-Oriented Approach: Compliance audits should be viewed as learning opportunities for the organization. Ensure all employees understand the purpose and responsibilities of compliance audits through training sessions, workshops, and transparent communication from management. Foster a culture of continuous improvement.

5. Take a Broad View: While focusing on EHS compliance, consider related activities such as records management, accounts payable, system user access, and health and safety. A proficient auditor ensures that systems and processes comply with best practices, leading to holistic compliance management.

6. Create Internal Capacity: Establishing internal audit teams and investing in technology can contribute to ongoing compliance and continuous improvement. Internal capacity-building reduces reliance on external resources and stream

Get the Most Out of Compliance Audits Using Nimonik

Today, most audit processes involve technology to ensure compliance audits are effective. As a result, organizations can automate tedious processes, reduce paper trails, digitize records, and, most importantly, spend less time and money managing records.

At Nimonik, we developed a robust auditing and compliance management platform to help companies streamline their EHS compliance requirements.

Here are some ways Nimonik can help organizations get the most out of their compliance audits.

  • Conduct an audit using over 2,000 pre-made checklists, or create your own
  • Select specific regulations and convert them into an Audit Checklist
  • Perform inspections based on your obligations, risk levels, and requirements
  • Schedule inspections and have an audit trail showing who conducted the inspection and when
  • Track corrective actions to ensure the timely completion of remediation steps
  • Receive notifications and alerts when new relevant regulations are added
  • Generate an audit report in PDF or CSV formats and track your compliance status

Sign up for a free trial and see how much you can save!

FAQs (about compliance audit cost)

What is a compliance audit, and why is it important?

A compliance audit is a systematic review to ensure an organization adheres to laws, regulations, and internal policies. It helps identify and mitigate compliance risks, ensures legal and ethical practices, safeguards reputation, and protects against penalties, fines, and legal consequences.

What factors affect the cost of a compliance audit?

Several factors affect the cost of a compliance audit, including the size and complexity of the organization, the scope and depth of the audit, the industry and regulatory requirements, the availability of documentation, the level of staff cooperation, the need for external expertise, and the duration and frequency of the audit.

How does the scope of a compliance audit impact the cost?

A compliance audit’s scope determines the resources required to complete the audit and, thus, its cost. A broader scope covering more areas of the organization, processes, or regulations will require more time and resources, resulting in a higher price than a narrower scope.

What role does the size and complexity of an organization play in the cost of a compliance audit?

The size and complexity of an organization can have a significant impact on compliance audit costs. Large organizations or those with complex operations may require more extensive testing, resulting in higher prices. Additionally, the need for specialized expertise or the involvement of external consultants can also increase the cost.

How does industry-specific regulation impact the cost of a compliance audit?

Industries with highly regulated environments often require audits that delve into specific compliance requirements unique to their sector. Such audits may involve additional expertise, documentation, and testing procedures, leading to increased costs compared to industries with less stringent regulations.

Why is documentation important during a compliance audit?

As part of a compliance audit, documentation provides evidence of compliance, ensures consistency and accuracy, and helps auditors evaluate controls. It can also provide insight into areas for improvement in future audits.

What types of testing should be conducted during a compliance audit?

Compliance audits may involve various types of testing, such as documentation review, interviews, observation, and testing of internal controls. Compliance testing is a method used to confirm adherence to relevant laws, regulations, policies, and procedures. Tests may involve sampling or examining all relevant transactions or documents.

Are there any ways to reduce the cost of a compliance audit?

Yes, there are ways to reduce the cost of a compliance audit. Organizations can conduct internal audits, perform self-assessments, and maintain detailed documentation for auditors. Further, technology and automation can also help minimize costs while ensuring an effective compliance audit.