The Legal Audit: An Investment in the Future of Your Mission-Driven Environmental Enterprise

Many small and growing businesses—even those working in heavily regulated areas like environmental restoration, conservation, and renewable energy—forgo the assistance of qualified legal counsel. At best, they might engage a lawyer for a specific task, contract review, or dispute. Non-profits often rely on volunteer lawyers and board members with legal backgrounds for these purposes.

If you’re serious about ensuring legal compliance, managing risk, and landing opportunities in an evolving regulatory landscape, there’s a better way. And it starts with a legal audit.

What is a Legal Audit?

A legal audit, also known as a compliance audit or legal health check, is a systematic examination of an organization's legal standing, governance structures, and compliance with relevant laws and regulations. This comprehensive review is conducted by qualified legal professionals to identify any potential legal risks, compliance gaps, or areas for improvement within the organization's operations.

Engaging legal counsel with experience in your industry and its regulatory environment ensures that the audit aligns with industry standards and best practices, providing organizations with comprehensive insights and recommendations tailored to their specific needs and objectives.

Collaboration between the organization and legal counsel is vital. While attorneys may propose an initial scope, organizations should contribute insights into their operations and objectives. Clear communication ensures alignment and transparency, allowing organizations to tailor the audit to their needs while still identifying legal risks and compliance issues effectively.

Why Conduct a Legal Audit?

A legal audit serves as a pivotal tool for small and growing enterprises, offering a comprehensive review of their legal standing, governance structures, and compliance with relevant laws and regulations. It provides a starting point to identify and address legal risks, particularly in activities that may be less visible or obvious to board members or executive staff focused on the organization's vision.

The legal audit also serves to educate your attorney or law firm about the mission, culture, and inner workings of your business. Now you've got a lawyer who really knows you, so that when a legal problem or opportunity presents itself, they and and your organization will have a running start.

For organizations engaged in fields like environmental restoration, conservation or renewable energy, a legal audit can be essential. Due to the heavily regulated nature of the work they do, these enterprises face intense scrutiny when seeking funding or collaborative partners. By ensuring compliance with environmental and other laws, a legal audit helps maintain both credibility and eligibility for funding. It also enhances transparency and trust with stakeholders, aligning operations with their mission.

Preparation for the Audit

To facilitate the legal audit process, it's essential for the organization to identify key personnel, including board members and staff, who can direct counsel to relevant documentation and provide insights into the policies and practices of the organization. This collaborative effort ensures that the audit addresses all pertinent areas and enables counsel to gain a comprehensive understanding of the organization's operations.

Organizations can best prepare for this by:

1. Designating a Point of Contact: Appoint a designated point of contact who will liaise with legal counsel throughout the audit process. This individual should have a thorough understanding of the organization's operations and be able to coordinate communication between counsel and relevant personnel.

2. Document Compilation: Compile all relevant documents and information in advance, including governance documents, financial records, employment policies, contracts and agreements, environmental program documentation, permits and licenses, and any other materials pertinent to the audit. Organize these documents in a logical manner to facilitate easy access and reference during the audit.

3. Staff and Board Involvement: Identify staff members and board members who possess detailed knowledge of the organization's policies, practices, and operational activities. These individuals may need to meet with counsel to provide context, answer questions, and respond to inquiries in a timely manner. Encourage open communication and cooperation among all parties involved in the audit process.

4. Timely Response: Recognize that the audit may involve an iterative process, with counsel requesting additional information or clarification as needed. It's crucial for personnel involved to respond promptly to written inquiries and requests for meetings to ensure the audit progresses smoothly and stays on track.

5. Clear Communication Channels: Establish clear communication channels between the organization and legal counsel, ensuring that any questions or concerns are addressed promptly. Regular check-ins and status updates can help keep the audit process moving forward efficiently.

Results—the Audit Report

On completion of the audit, the organization should expect to receive a comprehensive report detailing the findings, observations, and recommendations of legal counsel. This report may include an analysis of the organization's compliance with relevant laws and regulations, identification of potential legal risks or areas for improvement, and recommendations for mitigating risks and enhancing legal compliance. Additionally, legal counsel may provide guidance on implementing any necessary changes or updates to policies, procedures, or governance structures based on the audit findings. The organization can use this report as a valuable resource for strengthening its legal standing, safeguarding its mission, and ensuring ongoing compliance with legal requirements.

Legal audit reports prepared by a lawyer are typically protected by the attorney-client privilege. This means that they are considered confidential communications between the organization and its legal counsel and are generally not subject to disclosure. There are also specific laws governing environmental self-audits. However, there are exceptions where disclosure may be required by law or in certain legal proceedings.

Time and Budget Considerations:

The duration and cost of a legal audit for small to mid-sized businesses or nonprofits can vary based on factors like organizational size, complexity, and audit scope. Typically, such audits involve document reviews, personnel interviews, and analysis, spanning several weeks to a few months. When budgeting for legal services, organizations should consider factors such as hourly rates, audit duration, and additional expenses.

It's essential to view the legal audit as an investment in the long-term health and opportunity of the enterprise. Clear communication with counsel upfront helps clarify billing expectations and ensures alignment with organizational priorities.

--Jennifer Wazenski

Watershed Legal Counsel advises nonprofit and for-profit enterprises and local government in environmental and natural resources matters, conducts legal audits, and serves as outside general counsel for mission-driven enterprises in the environmental space. Founder Jennifer Wazenski is a Maryland attorney who has practiced environmental and natural resources law since 1991. She served as Principal Counsel to the Maryland Department of Natural Resources from 2013 through 2021, and, prior to that, Deputy Counsel to the Maryland Department of the Environment.

Disclaimer: Attorney advertising. The information provided at this site is for general purposes only. 

It is not, nor is it intended to be, legal advice.

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