INTRODUCTION

FMC Technologies has voluntarily elected to implement an aggressive internal audit program for reviewing Health, Safety and Environmental (HSE) programs and processes that, at a minimum, meets prevailing HSE auditing practices within industry. The term "audit" refers to a systematic, documented process to objectively collect and evaluate information in order to verify a site's HSE performance. The FMC Technologies audit program is designed to help ensure that risks at FMC Technologies' operating units are reasonably minimized, liabilities are appropriately controlled, compliance with applicable regulations is achieved, and management systems are in place and functioning. The audit process will verify the existence of HSE management systems through employee interviews, review of documents, field observations, and verification testing to ensure that safe working conditions and management systems are in place and functioning as intended.

FMC Technologies believes that protecting human resources is a core value and a key component in managing our business. This philosophy is embodied in the corporate policy on health, safety, and the environment (FMC Technologies HSE Manual Reference No. 1.1). Our audit program is based on the Corporate Policy and Management System and is built around the corporation's Core HSE Values and Beliefs, which support our business strategies (FMC Technologies HSE Manual Reference No. 1.1). In addition, the audit program provides direction for achieving compliance with FMC's Management Systems and Criteria (FMC Technologies HSE Manual Reference No. 2.1).

It is FMC Technologies' intent to conduct audits in a climate of mutual trust and respect, and in a way that fosters team work and ongoing improvement and verifies that corporate policy is implemented.

This document describes the basic framework of FMC Technologies' HSE Audit Program. It will be periodically reviewed and updated to incorporate lessons learned from our auditing experience, input from management, and changing developments in the field of HSE auditing.

OBJECTIVES

The objectives of FMC Technologies' HSE Audit program are to:

PROGRAM SCOPE

Organizational

The organizational entities included within the scope of the audit program are as follows:

The program will cover FMC Technologies' worldwide operations.

Location

The location scope defines the boundaries of each audit and includes:

• all activities within the facility's property line;
• contractors working on an FMC Technologies site who may have an impact on FMC Technologies' HSE performance; and
• off-site facilities (e.g., warehouses, distribution centers, service installation jobs, etc.) under the operating control of the facility being audited.

Functional

The functional scope identifies the topics to be included in the audit program, and they include the following:

• employee safety
• industrial hygiene
• workers' compensation management
• medical program
• security
• field service safety
• environmental
• product safety
• hazard control
• HSE education and training
• general HSE communications
• HSE procedures and rules
• audits and inspections
• incident investigations
• emergency planning
• behavioral based safety management
• annual action planning

DEPTH AND LEVEL OF REVIEW

Each audit will cover topics identified under the functional scope. The audit team will review a representative sample of HSE activities at the audited facility in order to determine the facility's overall HSE performance.

The review period for each audit will cover activities from January 1 of the preceding year up to and including the last day of the audit.

AUDIT STANDARDS

The standards for each audit will include:

• applicable federal/national, state/provincial, and local HSE laws and regulations
• company policies, standards, and procedures
• FMC Technologies Corporate Health, Safety and Environment Policy 
•  HSE Management System and Criteria
• Corporate HSE Manual
• good HSE management practices

ANNUAL AUDIT SCHEDULE

By December 1 of each year, the Corporate Director EHS will publish a preliminary audit schedule for the next calendar year. This schedule will be reviewed and approved by the affected line managers. Any requests for deviation from this schedule must be submitted to the Corporate Director EHS by December 15. The final list of scheduled audits will be published by January 15.

The Corporate Director EHS will coordinate the selection of team leaders and additional audit members to perform the audits identified in the annual schedule.

TIMING AND FREQUENCY

FMC Technologies sites will be audited according to a predetermined annual agenda, at least once every three (3) years. However, more frequent audits may be necessary at some locations where potential HSE risks, liabilities and compliance issues exist.

ORGANIZATION AND STAFFING

Authority

FMC Technologies' Worldwide Health, Safety and Environment Policy grants authority to the Corporate Director EHS to implement and manage an internal audit program.

Technical Assistance and Support

After the final audit report is received by the site manager, technical assistance can be requested from the Corporate Director EHS to prepare action plans or follow-up on specific recommendations. The site will not incur audit team expenses if assistance from the Corporate Director EHS is requested, unless outside consultant services are retained or other special circumstances exist.

Audit Staffing

The audit team is staffed by both Corporate and professional HSE personnel from sites other than the one being audited. Audit team leaders will be either Corporate staff or field staff, who are highly skilled and experienced in auditing techniques.

A pool of HSE resources will be trained to accomplish the scope and achieve targeted goals of the audit program. Audit teams are composed of team members and a team leader. The size and composition of each team are subject to change depending on the size and complexity of operations and issues at the site. A minimum of two auditors will be assigned to each audit except for smaller operations.

Audit Program Coordinator

The Audit Program Coordinator (APC) is the Corporate Director EHS. Primary duties include:

• determining the scheduling, priority and scope of audit reviews;
• participating as a member of operating unit audits or as a team leader for corporate reviews;
• reviewing and editing audit reports;
• reviewing and tracking the progress of action plans developed by site management in response to findings/recommendations identified by the review team;
• preparing status reports and management summaries;
• providing for timely training of auditors;
• interacting with division management, site management, and other operating unit staff;
• incorporating new regulatory requirements and audit techniques into the Audit Program manuals and the training program; and
• implementing a quality assurance/quality control program to maintain high standards.

Organization and Staffing

Auditors used for conducting the audits will have the appropriate qualifications and training:

• technical training and experience appropriate to the work called for in the audit;
• an understanding of basic auditing theory and procedures and the experience to apply it to particular assignments;
• a working knowledge of the regulations, criteria, and standards appropriate to the scope of the audit; and
• general familiarity with the types of operations to be reviewed and the issues likely to be encountered within the audit scope.

Team Leader

Conducting HSE audits is a complex undertaking. The success of the program depends on an effective team leader with superior organizational, technical and communication skills. The team leader is responsible for:

Pre-Audit Activities

• send notification letter to site manager
• assign team member audit responsibilities
• schedule team meetings
• gather and distribute background information
• review appropriate federal, state, and local regulations and company policies and procedures
• modify protocol to reflect facility-specific requirements and information gained during review of background information
• review and revise audit plan and assigned duties as necessary
• determine and confirm arrangements with the team members and the facility (travel arrangements and hotel/travel reservations)
• prepare items for audit (form, supplies, protocols)

On-Site Activities

• lead opening meeting presentation
• serve as liaison between team and facility personnel to ensure that all team members are appropriately scheduled to meet with facility personnel
• solicit feedback from each team member on the status of work accomplished throughout the audit
• perform audit duties as determined by the audit plan
• review assigned protocol steps with each team member to ensure that all steps are covered appropriately
• document the rationale for changing the scope of the audit (if necessary)
• understand the context for and meaning of each finding reported by the team
• provide periodic feedback to facility personnel on the status of the audit and the findings of the team
• prepare the exit meeting discussion sheets listing all findings as summarized by the team
• ensure that all exit meeting discussion sheets are reviewed by each team member
• review all findings with key facility personnel prior to the exit meeting to ensure the accuracy of all findings
• lead presentation of exit meeting discussion
• summarize reporting schedule and format

Post-Audit Activities

• review all working papers to ensure that all topics were covered and that all findings are corroborated by working paper notes
• prepare draft report
• distribute draft report to appropriate personnel
• incorporate comments where appropriate into the final report

Team Member

Members of the HSE audit team are selected on the basis of their training, technical background, experience and knowledge of operating processes. They must also have demonstrated an ability to communicate in a clear manner. These members are responsible for:

Pre-Audit Activities

• make travel arrangements (if required)
• attend pre-audit team meeting (if required)
• prepare for the audit by reviewing appropriate federal, state, and local regulations, company policies and procedures, and available background information
• modify the protocol to reflect facility-specific requirements and information gained during review of background information

On-Site Activities

• perform duties assigned by the team leader during the audit
• serve as a resource for other audit team members during the audit
• report on progress to the team leader throughout the audit including any problems encountered
• share observations/concerns with other team members during the audit to ensure that each is addressed appropriately
• keep facility personnel apprised of findings as they are noted
• summarize all findings and report them to the team leader before the close-out meeting
• assist with preparing the exit meeting discussion sheets
• ensure that all findings noted in your working papers are presented on the exit meeting discussion sheets and accurately reflect the facts.
• contribute during the exit meeting when questions are raised about findings.

Post-Audit Activities

• review draft audit reports for:
• wording changes
• suggested changes in placement of findings within the report
• provide input as necessary when findings in the draft report are challenged.

LEGAL ISSUES

The legal department is available for routine consulting during the audit process to the Audit Team Leader, senior site manager and/or both. The audit team members have the authority and accountability to stop any work in process, job or operation where there is a situation of "immanent danger." The Audit Team Leader will stop the work in progress and immediately notify the senior manager, and the legal department. The legal department will provide council to both managers relative to abatement, and language in describing the hazard. The legal department will receive a copy of the site's written response and action plan.

METHODOLOGY

HSE issues should be managed with the same intensity as other business issues, such as cost, productivity and quality. The HSE Audit Protocol will assess compliance against the Corporate Health, Safety and Environment Policy and Management System Criteria. The management system will give the audit team a comprehensive overview and status of the site's HSE programs, which may lead to a recommendation for a more specific audit protocol (e.g. Regulatory Compliance, Industrial Hygiene Strategy, etc.).

The audit program can accommodate requests from site, division or group managers to perform specific audit protocols that may help the site reach compliance with their overall HSE programs. The implementation and effectiveness of management systems is the responsibility of line management. Therefore, the primary client and contact for the audit process is the senior site manager (site manager, vice president, division manager, etc.) supported by the on-site functional staffs.

On occasion, the audit function may extend beyond FMC operational boundaries to a third party, such as toller sites, vendors, suppliers or an acquisition candidate. This would be considered a special audit with specific objectives that may or may not include portions of the functional scope described above.

The audit process consists of four phases: 1) Pre-review Activities, 2) On-site Activities, 3) Post-review Activities and 4) Status and Reporting. (On page 14, Figure 1 depicts the entire process).

PHASE 1 - PRE-REVIEW PROCESS

Careful preparation and planning are vital for a successful on-site evaluation. The necessary components for this preparation include: interfacing with site management, requesting advance information, formulating the review plan and making travel and lodging arrangements.

Interfacing with Site Management

At least six weeks prior to the date of the audit, the team leader will contact the site manager in writing to confirm the date of the review, and other preliminary information, including: (Attachment 1 - Sample Audit Notification Letter)

• the purpose of the review;
• special audit protocols when appropriate;
• confirmation of the review date and estimated length of the on-site audit review;
• a proposed agenda for the audit team's activities while on-site;
• a request for advance information;
• a list of information to be available on-site when the audit begins;
• a specific request for the site manager's participation in the audit process (e.g., opening and closing conferences, etc);
• a request for an office or conference room that the audit team can use as a base of operations; and
• travel and lodging arrangements.

Audit Information

Advance information will help the team perform the audit efficiently and effectively. The advance records provide an insight into the site's operations and some of its internal control mechanisms. In addition, the team will need numerous documents available for their review once they are on-site.

(Attachment 2 - Advance Audit Information) and (Attachment 3 - List of Information to be Available On-site for the Audit Team Review)

Formulating the Audit Plan

The audit plan will be based on the information provided. This information will give the audit team a preliminary overview of programs and procedures already in place. The audit team will determine additional information needed, including:

• other documents, reports, or records to be examined during the on-site work;
• areas or operations to be viewed while on-site; and
• key personnel to be interviewed.

The audit team leader coordinates development of an audit plan for all on-site activities. A general plan is discussed with site management (or designee) prior to the site visit. Throughout the on-site process, this plan is continually evaluated and updated to ensure that the team addresses any new issues or concerns raised during the audit.

Phase II - On-Site Review Process

The on-site audit process is divided into five stages: 1) an opening conference, 2) a plant tour, 3) management system and program overview, 4) evaluation and update of the audit plan, and 5) closing conference.

Opening Conference

The opening conference with the site management team and employee representatives provides a good opportunity for exchanging information and setting the tone of the on-site review. The team leader will:

• review the purpose of the audit;
• introduce team members, their affiliation and their areas of expertise;
• review the proposed agenda and establish a schedule for interviews with key personnel and inspection of the site;
• establish a schedule for daily updates with the site manager (if applicable); and
• allow site management to brief the audit team on products, business climate, management systems, culture and HSE plan and provide an overview of site operations, areas of concerns and a safety orientation (safety equipment required while on-site, emergency exits, etc).

Plant Tour

After the opening conference, a brief orientation tour will be conducted. This tour helps familiarize the team with the site operations. (Attachment #4 - Checklist for Site Tour)

Program Overview with HSE Coordinator

Following the orientation tour, the review team will meet with the HSE coordinator(s) for an overview of the HSE program.

Evaluate HSE Performance

The audit team will evaluate HSE performance by gathering information to substantiate compliance or non-compliance with applicable HSE requirements and confirm the functioning of management system.

Management systems are those policies, programs and activities established by management to ensure the HSE of all employees.

The audit team will determine if the necessary HSE management systems are in place, and if they are compatible with corporate policies, operating standards and regulatory requirements. This phase of the audit allows team members to independently examine and verify information by reviewing pertinent records, reports and other documents, by interviewing key personnel, and inspecting the physical plant.

This process will help the audit team generate audit findings and observations based on factual information and prepare recommendations that will assist the site in meeting its program goals and objectives.

Evaluation and Update of the Audit Plan

Each auditor must control the on-site information gathering effort. This effort is driven by the audit plan, which may require changes to address new areas of concern. At the end of each day, the audit team will meet to discuss and summarize each auditor's findings or concerns. This meeting allows team members to exchange information and bring items of concern to the attention of the team leader. The team revises individual and group plans, as needed, and lists additional documents, interviews and inspections needed. The audit team leader will also provide a daily update to the site manager.

The day before the scheduled closing conference, the team will meet to summarize its findings and prepare a detailed closing conference outline.

Closing Conference

After the field work is completed, a closing conference will be held with site management. The tone of this conference should be one of open and positive communication to review the findings identified during the audit. A preliminary outline is prepared and will include:

• positive features of the HSE Process;
• specific findings (separated by topic and supported by field observations); and
• a listing of HSE findings and recommendations.

The closing conference agenda should allow sufficient time for a question and answer session to ensure that there is understanding of and agreement on all issues.

If there are discrepancies and/or disputes identified during the closing conference, these issues should be discussed and resolved. If a suitable resolution can not be reached, the issue will be presented to the Division Manager and he/she will make the final decision, which will be honored by both parties.

Phase III - Post-Review Process

The preliminary audit report will be modified to incorporate changes and clarifications discussed during the closing conference. Within 10 days of the closing conference, a preliminary report will be sent to the site management for final review and agreement within 10 days of its receipt. After receiving agreement, the team leader will prepare the final report and issue it to the site manager.

To reinforce the constructive tone of the audit process, all findings and recommendations will be discussed with site management prior to publication of the final report.

Within 30 days of receiving the final report, the site management must develop an action plan and time table for addressing the recommendations. The team leader will review the action plan and time table and either agree or initiate further dialogue within one week of receipt. Once the action plan is agreed upon, the team leader will forward the final audit report and action plan to:

• the Division Manager;
• the Corporate Director EHS; and
• the Law Department, if necessary.

PHASE IV - STATUS AND REPORTING ACTIVITIES

Once the action plan has been developed and distributed, the audit team's responsibilities are complete. However, there are several follow-up activities for the site management group and team leader.

The audit team leader will transmit the audit working papers and report to the Corporate Director EHS for continued follow-up, including:

• coordinating follow-up by other HSE professional(s) to address items identified in the action plan; and
• reviewing bi-annually status reports until all action items have been addressed.

The site manager is responsible for providing bi-annual updates on open action items until all recommendations are completed and fully implemented. Updates are provided to:

• the Division Manager/Functional Director;
• the Corporate Director EHS;

Quality Assurance

Quality assurance is necessary to maintain high standards and to accomplish the objectives of the Audit Program. Quality control and quality assurance require continuous evaluation of the program, including:

• period review of audit program objectives;
• determination by team members, at the conclusion of each audit, whether objectives of the audit were met and identification of areas needing improvement, including the process and protocols;
• periodic updates and revisions to the Audit Program;
• team leader oversight of field work activities;
• protocols to guide the team in conducting audits on a consistent basis;
• trained and experienced auditors; and
• third-party evaluations, by consultants or an in-house team, which may include:
• an examination of reports and working papers;
• an independent assessment of on-site activities and protocols; and
• a critique of the program's goals and objectives.