The basics of: EHS Accounting
But environmental accounting is a practice with relevance to the EHS professional’s job -- a relevance especially apparent to anyone who has ever tried to identify, quantify and categorize the costs of environmentally sensitive equipment, processes or systems and failed. Here is a basic environmental accounting primer to help you succeed. The reason it is so hard to locate detailed environmental cost information in a company’s financial system has to do with how a company stores and manipulates the vast cost information it collects.
Corporate financial and accounting offices are flooded daily with cost information for materials, products, utilities, maintenance, goods and services. To survive, financial and accounting groups create bulk accounts or cost pools to accumulate and manipulate similar or like costs. But accumulating diverse cost data into one cost pool forfeits specific financial detail; the practice hampers your efforts to find information.
What does a disposable respirator really cost?To better illustrate how to use environmental accounting as a systematic cost identification approach, consider a hypothetical situation in an EHS setting: Let’s say you want to know the environmental cost of using a disposable respirator. You want to determine its total environmental cost, including not just the purchase price, but any hidden costs associated with using the respirator.
The operative words in the definition of environmental accounting are "systematic approach." You need a logical, systematic methodology to wade through the muddy waters of bulk allocation, searching for detailed environmental costs.
But how do you flush out the environmental account detail from the bulk accounts? Two basic probing questions are at the heart of environmental accounting:
The first line of questioning concerns the creation of environmental cost buckets. There are four environmental cost buckets -- direct, indirect, liability and less tangible benefit costs -- used to segregate environmentally sensitive costs and expose their detail.
The second line of questioning should aim to evaluate the detail and special qualities of the cost items located in the environmental accounting bucket. These prompt questions provide a systematic method of analyzing the cost items that have been collected in each bucket. By asking a series of questions, you can analyze the cost items from many different environmental program perspectives. And, by asking diverse probing questions, the EHS professional has the potential to find hidden costs that may be located in direct, indirect, liability and less tangible benefit cost buckets. The unit of cost for the respirator is a direct cost -- 74 cents per respirator.
Also grouped under direct costs of a disposable respirator you should find disposal costs. That’s because using a throw-away piece of equipment increases the frequency of disposal, fees for which are weight sensitive.
Also consider, fees for disposal to an EPA certified incinerator can be rather steep, running from $10 to $50 per pound, rather than $10 to $40 per ton for conventional waste disposal. Add to the incineration fees the additional cost of long distance hauling and the cost for special incinerator consumable barrels. Now you can see how your hidden costs can escalate.
The second environmental accounting cost element is indirect costs, encompassing administrative, regulatory, on-site waste management and site pollution equipment costs. Included here are insurance and workers’ compensation.
The third bucket is liability costs -- penalties, fines, legal fees, personal injury and property damage. Also covered under liability costs are any damages to natural resources, with the huge cost and liability for Superfund cleanup. Respirators do not have a negative liability cost. Instead they could reduce liability due to lower insurance fees. The fourth and last environmental accounting bucket is less tangible benefits. Anything that enhances, enriches, or improves employee, corporate, or community work standards or life-style is a benefit.
Customers who buy a product because they know it is environmentally safe constitute a less tangible benefit. Conversely, a product perceived to have a deleterious affect on the environment has a negative less tangible benefit. Disposable respirators can have a positive benefit if your employees prefer them.
Now you know that you have to conduct more research to answer the question concerning the weight of the disposable respirator. You will be looking at its frequency of disposal and weight, plus the incineration costs.
You might find that the weight makes no substantial cost difference. Or you might find there is no cost factor related to the fee structure of your hazardous waste site. But what if the fee structure for the incinerator increases? Will the increase in the waste site fees offset the purchase price savings? Interesting question, which you don’t need to be a bean counter to answer.