Onyx rebuilds internal audit culture after record waste fines

Through its Onyx subsidiary, the French utilities group Vivendi had been building a stake in the UK waste management market for nearly a decade, working mainly on contracted out local authority business. Then, in August 1997, it took the leap of acquiring a company at the heart of the British waste sector - Leigh Environmental. The acquisition gave Onyx a valuable network of landfills and hundreds of industrial customers.

Within a year, however, disaster struck when two separate incidents, both in May 1998, sent clouds of acid fumes billowing over Killamarsh, near Sheffield, home to Leigh's chemical waste treatment complex. The spills caused panic among neighbouring residents (ENDS Report 281, pp 16-17 ).

Adverse publicity included numerous local protests and a debate in Parliament - and led the company, trading as Sarp UK, to acknowledge that it had a "credibility problem". Onyx has since closed much of the Killamarsh site, including the acid treatment plant and an incinerator (ENDS Report 299, p 20 ).

Inadequate controls
Enforcement action following these incidents culminated on 23 December 1999 with a hearing at Derby Crown Court. Sarp UK was fined a total of £120,000 and ordered to pay £150,000 in costs. The case was brought jointly by the Environment Agency and the Health and Safety Executive.

The court heard that Sarp had exercised inadequate control over the hazardous waste operations. In the first incident, around nine tonnes of acid had leaked from a road tanker because its seal was not suitable for use with strong acids. In the second, staff poured nitric acid into a reception tank in breach of company procedures, causing a chemical reaction with sludges in the tank.

For these two incidents, Sarp was fined £20,000 and £60,000, respectively, for keeping waste in a manner likely to cause pollution, contrary to section 33(1)(c) of the Environmental Protection Act 1990. It was fined a further £40,000 for offences under health and safety legislation - for failing to ensure the safety of its employees and contravening regulations on the carriage of dangerous goods.

On 6 January, the group appeared in court yet again - this time in connection with landfill operations at Leigh Environmental before the Onyx takeover. Telford magistrates fined Leigh £87,500 in relation to the falsification of scientific data it had sent to the Agency. It was also ordered to pay £20,500 in costs. The total fine appears to be a record for a waste management conviction.

In total, in the space of two weeks, two court appearances have cost Onyx no less than £378,000 in fines and costs. Leigh was also prosecuted last March, when it was fined £16,000 for incorrectly installing gas monitoring boreholes at a site in the West Midlands (ENDS Report 291, p 56 ). The installation, contrary to the working plan, was such that escaping landfill gas might have gone undetected.

Falsification of data
It is not every day that a business is accused of supplying falsified information to regulatory officers. At the Telford court hearing, however, the Agency explained how false entries had been recorded in the site diary at Leigh's Coalmoor landfill site, near Wellington in Shropshire, between June 1996 and March 1997. Data relating to the Ling Hall site near Warwick had also been altered.

The situation came to light in May 1997 following a tip-off from a whistleblower - Assistant Landfill Manager David Whitelegg - who had only recently started with the company and was to leave shortly afterwards. He now works for another leading waste management business.

The court heard that Mr Whitelegg had been requested to make false reports. The prosecution alleged that he had been intimidated into showing false leachate levels - and had been threatened with the sack if he refused to do so.

A manager at Leigh's Beighton office, in Sheffield, had been behind the falsification exercise, the Agency said. He is due to face charges himself of "deliberately making false entries".

According to the Agency, the manager had laboratory results sent to him directly. He allegedly photocopied them and tippexed over some of the figures before photocopying the documents again and sending them to the site.

In June, after taking a statement from Mr Whitelegg, Agency officers raided the landfills to seize documents covering the period from June 1996 to April 1997. They subsequently raided the Beighton office, but by then the relevant documentation had disappeared.

Agency officers then embarked on lengthy investigations - with full co-operation from Leigh - to gather the evidence needed to demonstrate what had happened. The manager at Beighton is said to have "confessed" to senior management, whereupon he was sacked. Crucial evidence came from the testing laboratories, after the Agency served a notice on them using powers to demand information under the Environment Act 1995.

Landfill loading rates
Out of 517 figures sent to the Environment Agency from the Coalmoor site, some 252 had been falsified, the court heard. Most of the falsifications related to the amount of oil, cadmium and cyanide contained in wastes deposited at the site.

The landfill is a co-disposal site at which hazardous materials may be mixed with municipal refuse. The licence stipulates maximum loading rates of various metals and other substances.

In December 1996, Leigh had submitted analysis showing that only 1.4mg/kg of cyanide and 1,690mg/kg of oil had been deposited. The Agency worked out that the correct figures should have been 21mg/kg and 25,900mg/kg, respectively.

By presenting the loading rates as less than one-tenth of the true figures, Leigh was able to accept more industrial waste at the site than permitted under the licence. The outcome was to improve the company's financial performance.

Similar falsification took place on leachate levels. The licence required that the head of leachate in pumping chambers should not rise above 4.5 metres - a condition which the operators claimed to be satisfying. However, the Agency was able to demonstrate that leachate levels in March 1997 had risen beyond 10 metres.

Leaving excess leachate in the site saved the company a significant sum, since it meant that pumping operations and off-site disposal could be avoided. However, more leachate also means greater risks of pollution. Onyx has since removed the excess liquid.

At some landfills, there can be operational pressure to delay the installation of engineered capping. Such capping can reduce the influx of rainwater, helping to alleviate leachate problems, but it also requires substantial capital investment.

Leigh pleaded guilty to six breaches of its licence at Coalmoor and one breach at Ling Hall, all contrary to section 33(6) of the 1990 Act.

It is significant that the Agency chose to prosecute Leigh for breaches of licence conditions rather than for the falsification of information. The 1995 Act made it an offence for any person intentionally to make a false entry in any record relating to a waste licence.

"The dishonest behaviour is not attributed to the company but they are still charged with a breach of their licence," the Agency said in court. "This person [the manager at Beighton] was not far enough up the chain of command to represent the company, [but] the company is criminally responsible for the actions of its staff."

The Agency also testified that the licence breaches had not caused danger to the environment - "but that is not to say that if the procedure had carried on there would not have been far greater damage to the environment."

Onyx disappointed
In court, Leigh stated that the manager in question had "sole responsibility for ensuring compliance", and that knowledge of the falsification activities did not extend beyond a few other employees who were "acting under his influence".

But the sizeable fines imposed for the offences - £12,500 apiece - suggest that, in the magistrates' view, the company bore a substantial share of the responsibility for what had happened.

Speaking to ENDS, Onyx's Environment Director, David O'Connor, said he was disappointed that the Agency had prosecuted the company when it had co-operated fully and the Agency agreed that there had been no environmental harm.

Mr O'Connor also complained that it was unfair that the company would appear high up in the Agency's Hall of Shame when other offenders who had caused serious pollution got off with low fines.

No company could be "completely safe from the actions of dishonest employees," he said. "This was the act of one individual."

Nevertheless, the experience had led to a system of better checks and balances, Mr O'Connor said. All laboratory documents now go directly to the sites, and the originals are then forwarded to the Agency.

Conflicting responsibilities
Significantly, however, Mr O'Connor explained that the former manager at Beighton had had joint responsibility for operational and technical issues - a potential conflict of interest that was removed within weeks of discovering that falsification had taken place. "We've now got separate technical and operations mangers in place," he said.

Onyx has also set up a new technical team at headquarters level to audit environmental compliance in the whole business. Managed by Mr O'Connor, who is a board member, the department employs 14 professional staff. It was set up towards the end of last year.

Onyx is also implementing an environmental management system certified to ISO14001, the international standard. The Hampshire Waste Services subsidiary gained certification in 1998 and the Lewisham incinerator, SELCHP, followed in 1999. Former Leigh Environmental operations will soon fall under it.

The target is to achieve certification of all Onyx operations - now more than three times the size that Leigh was - during 2001.

Several other leading waste businesses are now pursuing certification to the standard. Pressure from customers is an important driver (ENDS Report 299, pp 21-24 ).

Back to the future?
Interestingly, however, aspects of Mr O'Connor's new department bear an uncanny resemblance to how things were run at Leigh Environmental until five years ago. Indeed, most large waste businesses have had separate technical departments, focusing on environmental compliance, for some years.

At Leigh, the old technical department was set up by Stephen Willetts, who was Technical Director between 1986 and 1995. A string of previous court appearances, and concern about damage to the company's reputation, had been among the reasons behind Leigh's decision to set up the department.

"Leigh went through a bad patch in the early 1980s and that was a result of there being no professional or technical self-audit," according to Dr Willetts, now a consultant.

The technical services department was intended to restore confidence that the necessary procedures were in place. It arranged all planning and licence applications, undertook environmental monitoring, and made the necessary returns to the regulatory authorities.

It also set up quality management systems and sought certification to the then BS5750 quality standard. According to Dr Willetts, Leigh was the first waste business to gain certification to the standard across all operations.

However, maintaining a technical services team costs money. Mounting financial difficulties in Leigh's sizeable liquid waste business were bringing increasing pressure to cut overheads.

Oversupply in this market had been exacerbated by water privatisation. Sewerage undertakers saw industrial liquid waste treatment as an important market opportunity beyond the grip of the industry's economic regulator, Ofwat. In addition, parts of the liquid waste sector were vulnerable to competition from smaller players with lower overheads and suitable connections to the sewer.

Financial pressure
At Leigh, a new chief executive was in position by early 1994 and some of the liquid waste sites were subsequently closed down. The company was kept afloat by its dry waste business, centred on its network of highly profitable landfill sites. But as losses mounted in Leigh's liquid waste business, shares in Leigh Interests took a nose-dive.

Leigh's exposure to the liquid waste sector was greater than that of most of its rivals - and the City showed little mercy. In any case, investors had little understanding of the sector, since only three significant waste businesses were at that time quoted.

In 1995, in a desperate bid to trim overheads, Leigh decided to close its technical services department. Leaner technical service teams were transferred to the direct control of the operational business units.

"They were under pressure to cut costs," said Dr Willetts, who left the company soon after his department was closed down. "I told the senior management that, by moving a slimmed-down technical services team into the operations, those staff would inevitably face pressure to cut corners and hence costs."

"My department was the technical and professional conscience of the business. I advised them that changing this would lead to very great commercial pressures destroying that independence with entirely predictable results."

"I could see it coming a mile off."