After almost a decade of neglect, EPA is once again actively encouraging facilities to utilize the agency’s Audit Policy to “address noncompliance in an efficient and timely manner.” Over the last several months, EPA has taken steps to promote use of the “e-Disclosure” system and to remind regulated entities of the benefits of the Audit Policy, which allows for substantial (near 100% in many cases) penalty reductions for violations that are self-disclosed and promptly corrected.
In announcing the launch of the new campaign on May 15th, EPA declared the agency’s “renewed emphasis on encouraging regulated entities to voluntarily discover, promptly disclose, expeditiously correct, and take steps to prevent recurrence of environmental violations.” This renewed emphasis is consistent with the current EPA’s focus on improving compliance through mechanisms, including voluntary self-correction, that achieve environmental goals more quickly and in a less costly, adversarial and time-consuming manner than traditional enforcement means.
More specifically, in the months since the initiative was launched, EPA has sought to expand use of the Audit Policy by enhancing and promoting:
→ the online “eDisclosure” program;
→ the additional flexibility available to new owners who self-disclose violations (“the New Owner Policy”); and,
→ opportunities to increase compliance through use of existing self-disclosure policies or tailored audit programs.
In its May statement, EPA explicitly aimed to remind the regulated community that the Audit Policy offers significant benefits, including:
(1) elimination of 100% of the gravity-based civil penalty that otherwise might apply (in the vast majority of Audit Policy disclosures, EPA will only seek to recover the “economic benefit”portion of a potential penalty);
(2) waiver of the economic benefit component of a potential penalty where EPA deems it insignificant;
(3) does not require advance notice to EPA of an audit;
(4) does not impose time limits on audit completion; and
(5) can provide clarity by defining allowable violation correction time periods.
To obtain these benefits, an audit should be structured and documented appropriately to help facilitate disclosures that best protect a company from liability and obtain maximum penalty mitigation. In particular, the scope and conduct of the audit should be well-defined and systematic, including documentation of findings and timely review of conclusions to ensure that violations are promptly disclosed within the 21-day time requirement of the Audit Policy.
The New Owner Policy also provides significant potential benefits and incentives for companies that want to make a ‘‘clean start’’ at newly acquired facilities by addressing environmental noncompliance that began prior to acquisition. Some of the policy’s key incentives and areas of flexibility include:
(1) the ability of new owners to enter into audit agreements that incorporate disclosure reporting that is appropriate to their unique situation;
(2) the waiver of economic benefit penalties that otherwise might apply to delayed expenditures; and
(3) more generous treatment of violations discovered through already legally mandated monitoring, sampling or reporting that would not normally be considered “voluntarily discovered” (such as testing pursuant to a Title V permit).
Aside from provisions specific to new owners of facilities in the upstream oil and gas industry, none of the recent “announcements” reflect any substantive change to the Audit Policy. EPA’s decision to issue a public statement of support for the Audit Policy, however, is an encouraging signal to the regulated community.
The Audit Policy was used extensively during the Bush Administration, but was effectively discontinued during the Obama Administration. The move is an affirmative sign that this Administration is more amenable to penalty mitigation for voluntarily discovered and disclosed violations, and a tangible manifestation of recent pronouncements out of the Office of Enforcement and Compliance Assurance that the agency is focused chiefly on finding ways to improve compliance and less towards punishment of violators.
More info on the Audit Policy and and the New Owner Policy can be found at: https://www.epa.gov/compliance/epas-audit-policy.