January 24, 2008Client Alert

EPA Targets Incentives to Conduct Environmental Compliance Audits in 2008

If your business is subject to environmental regulation, have you considered the protection from enforcement that may be available under federal and state environmental compliance audit programs?

The US Environmental Protection Agency (EPA) has targeted increased emphasis on environmental compliance audits in 2008 as part of its enforcement strategy. EPA has adopted an Audit Policy to incentivize companies subject to federal environmental regulations to conduct audits in return for protection from civil forfeitures and criminal prosecution.

The Wisconsin Department of Natural Resources (WDNR) has a similar program to encourage audits and provide enforcement protection for companies subject to state environmental regulations.

Businesses discover environmental violations in a variety of ways – during the due diligence in a buy-sell transaction, as part of changing or expanding a facility or product line, during a systematic audit process. Sometimes you are looking for them, sometimes you find them when you are least expecting to. Each of these situations presents an opportunity to maximize protection from environmental enforcement actions.

A. What is the EPA Audit Policy?

  • It is a policy adopted by EPA to encourage facilities to discover environmental violations, promptly report them to EPA and correct them.
  • It authorizes EPA to waive up to 100% of any civil forfeiture that might otherwise be assessed, and to forego criminal prosecution if that would otherwise be available.

B. Who does it apply to?

Any business or entity that is subject to federal environmental regulations – e.g., manufacturers, construction companies, hospitals, colleges and universities, developers, municipalities, property owners.

C. How does it work?

  1. The facility must meet nine conditions to be entitled to the full forgiveness available under the Audit Policy:
  2. Discover the violation through an environmental audit or compliance management system
  3. Discover the violation voluntarily and not through a mandated permit, statutory or other legal requirement
  4. Discover the violation independent of any government inspection or third party complaint
  5. Disclose the violation to EPA in writing within 21 days of discovery 
  6. Correct the violation within 60 days of discovery or such additional time as EPA allows
  7. Commit to take steps to prevent recurrence of the violation
  8. Cooperate with EPA
  9. Repeat violations – i.e., the same violation at the same facility in last three years, or part of a pattern at multiple facilities under the same ownership in the last five years – are excluded from the Audit Policy protections
  10. Violations that result in serious actual harm, present imminent and substantial endangerment, or violate specific terms of a judicial or administrative order or consent agreement – are excluded from the Audit Policy protections

D. How much can EPA seek in forfeitures for violations not covered by the Audit Policy?

  • The federal statutes currently set a maximum forfeiture of $32,500 per day per violation. Multiple violations can occur on any given day. Violations often continue for many days, sometimes months and years.
  • This maximum amount is rarely sought by EPA, but potential forfeiture exposure can be significant.

E. How does the Wisconsin DNR program work?

  • DNR administers a similar program under Wisconsin Statute §299.85, called the Environmental Improvement Program (also referred to as the DNR Audit Program).
  • The DNR Audit Program, like the EPA Audit Policy, is designed to encourage facilities to conduct audits and to promptly discover, disclose and correct violations in return for forgiveness of enforcement and potential civil penalties.
  • While the basic idea is the same as the EPA Audit Policy, there are procedural differences. One key difference is that the entity must give DNR at least 30 days notice before conducting the audit to gain the benefit of the DNR Audit Program. Another is the consideration DNR will give to the enforcement record of the facility.
  • Under the DNR Audit Program, if a facility conducts an audit and discloses violations it discovers, the state cannot file a civil suit unless the facility fails to correct the violations within a set period of time.
  • The DNR Audit Program applies to state environmental regulations, the EPA Audit Policy to federal environmental regulations. Many violations will violate both state and federal environmental requirements.
  • Maximum forfeitures provided in state law range from $10,000 to $25,000 per day per violation, depending on the type of violation. Multiple violations can occur on a given day, and violations can continue for extended periods of time.
  • Like EPA, DNR rarely seeks the maximum forfeiture amount, but the potential forfeiture exposure can be significant.

F. What steps should I consider taking?

  • Both of these programs are designed to encourage systematic environmental compliance audits.
  • You may discover environmental violations in the course of your day-to-day operations – when you weren’t really looking for them -- and need help deciding what to do. This often leads to frantic calls for legal advice and help determining what happened, when and why and what to do about it. With early involvement, we can help you make the best presentation to both EPA and DNR to gain the benefits of these audit programs.
  • If your business already conducts environmental compliance audits on some sort of periodic basis, you may benefit from building the notice to DNR and the timing of discovery and disclosure to EPA and DNR into your process to avoid the time-sensitive search for help if you discover violations. EPA will also enter into Corporate-Wide Audit Agreements to make the process – both schedule and outcome – as predictable as possible.
  • Violations are often discovered as a result of due diligence in a buy-sell transaction. EPA recognizes this as an opportunity for a clean slate for the new owner and has specifically addressed it in Audit Policy Guidance. The 21-day period for disclosure to EPA begins on the date of acquisition by the new owner. If that expectation is built into the transaction schedule, it can eliminate one additional worry for both buyer and seller.

G. How do I get additional information?

back to top