Landfill Management: A Comparative Analysis of Audits Versus Bonds

Landfills are a critical component of waste management infrastructure, responsible for the disposal of vast quantities of municipal, construction and industrial waste. Landfill management is a multifaceted challenge that involves financial considerations, environmental regulations, and public health concerns.

Due to these factors, landfills are highly regulated businesses.  Part of that regulation covers the financial wherewithal of the landfill to be able to adequately operate through closure and post-closure activities. In order to demonstrate financial capacity, landfills often times obtain a bond from a surety company.  However, a financial statement audit can replace bonding requirements for landfills that meet certain financial criteria, and in many cases the cost of an audit can be significantly less than the cost of bonding.

At GreerWalker client service and innovative problem solving are top priorities of the firm. This article sheds more light on the differences between bonds and audits in meeting the regulatory requirements along with why we believe an audit can be a better option.

Bonds

Bonds are financial instruments that serve as a form of security to guarantee compliance with landfill closure and post-closure care requirements. Landfill operators are required to obtain financial assurance, typically in the form of bonds, to ensure that sufficient funds are available to cover the costs of landfill closure, post-closure care, and environmental remediation.

The purpose of bonds is to protect the public and the environment by ensuring that adequate financial resources are available to address any environmental liabilities that may arise from landfill operations. By requiring landfill operators to obtain bonds, regulators can ensure that the costs of closure and post-closure care are not shifted onto taxpayers in the event of operator insolvency or abandonment.

While bonds serve an important function to regulatory agencies, the public and the environment, they can be a significant expense to landfill operators. Costs related to bonding are generally higher than the costs of a financial statement audit.

Financial Statement Audits

 A financial statement audit is an examination of a company’s financial statements and accompanying disclosures by an independent third-party. The purpose of an audit is to express an opinion on whether the financial statements are presented fairly in all material respects in accordance with Generally Accepted Accounting Principles. This audit opinion allows regulators to rely on the financial statements presented to assess the solvency of the related company and their ability to cover the costs of landfill closure, post-closure care, and environmental remediation. When certain financial criteria are met, as further detailed below, and a financial statement audit is performed, bonding requirements can be lifted.

Audits can also help identify potential risks and areas for improvement, allowing management to take corrective actions to mitigate risks and improve processes. In addition, reliable audited financial statements can enhance management’s decision-making capabilities and improve performance.

 Financial Criteria/Ratios

While there are multiple financial ratios that can be met to eliminate the bonding requirement, the simplest and most common in the states of North Carolina and South Carolina are maintaining a total liabilities to equity ratio of less than 1.5 to 1. An internal accounting team can determine if this ratio is met by referencing the company’s balance sheet. As with all regulations, they are subject to changes.   Accordingly, Landfills should verify the current financial criteria and related regulations with the appropriate regulatory agencies.

Conclusion

 Audits and bonds are essential tools in the management of landfills. While both have their benefits, the cost of an audit can be significantly less than the cost of bonding for landfill operators.

 If you are interested in learning more about how an audit can help your organization, fill out the contact form below or contact Ted Smoyer at ted.smoyer@greerwalker.com.

About the Author

Ted is a senior manager in our business assurance practice. He specializes in serving clients in the manufacturing and distribution industry and has experience with companies in industries such as business and professional services, technology, and healthcare.

Ted also has significant experience in financial due diligence and transaction advisory services. From buy-side quality of earnings, to sell-side consulting, to post acquisition services, Ted utilizes his experience to help clients identify and minimize risk.

About GreerWalker

GreerWalker LLP provides tax, accounting, and advisory services focused on the needs of privately-held middle-market companies and their owners throughout the US and around the globe.

Customized wealth planning for every stage of life is offered through our strategic partner, Choreo, LLC. Choreo, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training of the adviser or its representatives.

With over 130 associates, we are one of the ten largest CPA firms in our region and among the top 200 CPA firms in the United States. We have repeatedly been recognized as one of the nation’s “Best of the Best” accounting firms by Inside Public Accounting based on our overall superior financial and operational performance.

For more information, please visit greerwalker.com/about-us.

The information contained herein is general in nature and based on authoritative guidance that is subject to change. Neither GreerWalker LLP nor GreerWalker Corporate Finance LLC (collectively, “GreerWalker”) guarantee the accuracy or completeness of any information and are not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. GreerWalker assumes no obligation to inform the reader of any changes in tax laws, regulations, accounting standards, or other factors that could affect information contained herein. This publication does not, and is not intended to provide legal, tax or accounting advice, and readers should consult their advisors concerning the application of tax laws or accounting guidance to their particular situation. Any tax analysis in this publication is not advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.