Congress enacted Sarbanes-Oxley in 2002 as a response to the unprecedented financial fraud uncovered in companies such as Enron, WorldCom, and others. The stated purpose of the Act is to “protect investors by improving the accuracy and reliability of corporate disclosures…”1 Although the primary focus in the media and in many corporate boardrooms has been on financial disclosure, many companies will also need to take a close look at their environmental controls and reporting procedures. Recent SEC studies indicate that many public companies have not consistently complied with the environmental reporting requirements.2 Changes brought about by the Sarbanes-Oxley Act, including increased enforcement, more accountability, and tougher penalties, will likely turn this trend around.
After Sarbanes-Oxley, top executives must certify the accuracy of each annual and quarterly report. Executives must also certify that the company has procedures and controls in place that will uncover and report to the top any material liabilities. These certification requirements make the CEO and CFO ultimately responsible for ensuring that potential environmental liabilities are disclosed to the public. The Act also requires the SEC to conduct regular and systematic review of the financial statements of reporting companies. Now that EPA enforcement actions are public information and the EPA regularly shares information with the SEC, the focus of these reviews will most certainly include environmental liabilities. With the potential for criminal and civil liability for non-compliance greatly increased, it is essential that executives understand the requirements for environmental disclosure and determine whether their current system is in compliance.
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