COVID-19, EHS Management, Enforcement and Inspection, Special Topics in Safety Management

A Look at the EPA’s Audit Policy and Self-Disclosure

On March 26, 2020, the EPA’s Office of Enforcement and Compliance Assistance (OECA) issued a temporary enforcement discretionary policy due to the COVID-19 pandemic. Generally, the policy states that “regulated entities should make every effort to comply with their environmental compliance obligations,” but the EPA does not expect to seek penalties for violations of routine compliance in situations when COVID-19 was the cause of the noncompliance.

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The EPA noted that the policy may not apply to all situations and stated that its self-disclosure program under the EPA’s Audit Policy remains available. The policy has an August 31 termination date.

Environmental Auditing

Environmental auditing enables businesses and organizations to systematically uncover wasteful and inefficient activities and minimize or, under the EPA’s Audit Policy, eliminate exposure to regulatory penalties when potential violations are discovered. The EPA’s Audit Policy defines environmental auditing as “a systematic, periodic, objective, and documented assessment of an organization’s operations and practices compared to regulatory requirements.”

EPA’s Audit Policy

Issued in 1995 and revised in 2008, the EPA’s Audit Policy offers several major incentives for regulated entities to voluntarily discover and resolve violations of federal environmental laws and regulations. Incentives include significant reductions of gravity-based penalties, no recommendations for criminal prosecution, and no routine requests by the Agency for audit reports. A facility has 21 days from the time of discovery to disclose a violation to the EPA through writing or by using the eDisclosure system.

Nine Conditions of Self-Disclosure

Regulated entities must meet the following nine conditions to receive the Audit Policy incentives:

  • Systematic discovery of the violation through an environmental audit or the implementation of a compliance management system.
  • Voluntary discovery of the violation, meaning that it was not detected as a result of a legally required monitoring, sampling, or auditing procedure.
  • Prompt disclosure in writing to the EPA within 21 days of discovery or such shorter time as may be required by law. Discovery occurs when any officer, director, employee, or agent of the facility has an objectively reasonable basis for believing that a violation has or may have occurred.
  • Independent discovery and disclosure before the EPA or another regulator would likely have identified the violation through its own investigation or based on information provided by a third party.
  • Correction and remediation within 60 calendar days, in most cases, from the date of discovery.
  • Prevent recurrence of the violation.
  • Repeat violations are ineligible, i.e., the specific (or closely related) violations have occurred at the same facility within the past 3 years or those that have occurred as part of a pattern at multiple facilities owned or operated by the same entity within the past 5 years; if the facility has been newly acquired, the existence of a violation before acquisition does not trigger the repeat violations exclusion.
  • Certain types of violations are ineligible, such as those that result in serious actual harm, those that may have presented an imminent and substantial endangerment, and those that violate the specific terms of an administrative or a judicial order or a consent agreement.
  • Cooperation by the disclosing entity is required.

Benefits of an Audit

The benefits of performing an audit and self-disclosing noncompliance include:

  • Returning to compliance without concern of enforcement. Audits can provide a company with the ability to proactively address compliance issues. Companies won’t have to worry about inspections or large penalties if the noncompliance is discovered as a result of an environmental audit.
  • Civil penalty forgiveness. The audit policy provides between 75% and 100% of forgiveness of gravity based civil penalties if a company performs an audit and meets the required policy conditions.
  • Management tool. Rather than being motivated by fear of noncompliance and resulting penalties, audits should be viewed as positive and beneficial tools that allow management to provide information on environment, health, and safety standards to ensure a safer workplace.
  • Limiting likelihood of criminal prosecution. Companies that voluntarily disclose violations have the potential to avoid criminal prosecution if the companies meet the audit conditions.
  • Benefits for new owners. The EPA’s new owner audit policy gives the company an opportunity to fix any environmental problems it finds at its acquired facility and make a “clean start.”

Risks of an Audit

The risks of performing an audit and self-disclosing noncompliance include:

  • Exposing noncompliance. The primary risk is that an audit may uncover an area of noncompliance with environmental laws and regulations, but the company does nothing to correct the deficiency. 
  • Lack of follow-up. If violations are known but not corrected for whatever reason, the company could be subject to greater penalties than if the violations had never been identified.
  • Not a “shield” from enforcement. The audit policy is guidance, not the law. Therefore, the EPA may elect not to provide penalty forgiveness.
  • Violations become public. Even if the company qualifies for state or federal civil penalty reductions or avoids a penalty altogether, the violations still become public once disclosed to regulators.
  • Inspection post-disclosure. The EPA may perform an inspection of the facility following a voluntary disclosure. Be sure that facility records and operations are in compliance in advance of any inspection.

Although an environmental audit may have inherent risks, these risks can be mitigated by doing the following:

  • Involving legal counsel during an audit to review the potential liabilities that must be considered during the audit;
  • Paying careful attention to the information contained in e-mail correspondence related to issues raised in an audit; and
  • Having a plan in place before conducting the compliance audit for the diligent follow-up of the issues identified in the audit report, thereby ensuring that corrective action occurs in a timely manner.

Decision to Conduct an Audit

If you are considering conducting an environmental audit, carefully consider the benefits and risks, and be sure to take the time to develop an effective audit program. If your facility closed due to the COVID-19 pandemic and you are planning to reopen, it’s a good idea to conduct an environmental audit to ensure your facility is in compliance.