November 2012

Environmental agencies must develop cost-effective enforcement programs to meet goals within tighter budgets. One idea is to provide incentives for facilities to self-audit, voluntarily report any violations, and self-correct to return to compliance. Since finding and correcting violations are how most agencies are judged, self audits are a good fit.

Federal Self-Audit Program

The USEPA has had a self-auditing policy for over 25 years. Some relevant publications may be found here: http://cfpub.epa.gov/compliance/resources/policies/incentives/auditing/. The main incentive that the USEPA offers to encourage self-auditing and reporting is penalty reduction. The USEPA fine policy takes two factors into consideration: gravity of the violation and the economic benefit of violating. The USEPA has stated that it can reduce the penalty’s gravity portion fully or by 75% if certain self-reporting conditions are met. The USEPA will not reduce the economic benefit portion. In addition, the USEPA will not normally recommend an entity for criminal prosecution if it self-reports.

According to USEPA policy, a facility has to make the discovery voluntarily (not because of a legally-mandated audit or monitoring) and report a violation within 21 days of its discovery in writing to the USEPA. A violation is discovered 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. “Objectively reasonable” is difficult to define as a facility can find a potential violation but then take time (by necessity) to examine it thoroughly through legal counsel to determine whether it is a true violation or not. The disclosure must be made to the facility’s appropriate USEPA Regional Office and should, at a minimum, identify the means of discovery and type of violation. Correction of the violation is expected to be made within 60 days of the discovery date, although an extension can be granted. A system to reasonably prevent recurrence must be developed. The USEPA Audit Policy does not cover repeat violations, those that could cause serious harm, nor violations of a judicial, administrative, or consent order.

On the State Level

Roughly 30 states have enacted environmental audit privilege and/or penalty immunity laws. New York State is in the process of updating its self-audit rule. The NYSDEC is expected to post its draft self-audit policy for public comment beginning later this month. A final policy is expected to be posted and implemented in the spring of 2013.

The draft New York State Audit Policy applies to any facility within the state subject to environmental rules. It will not apply to repeat offenders (even for different but similar violations elsewhere in a facility) nor to “uncooperative” entities. It will not apply to violations made during department inspections or those that may cause serious harm.

Disclosure must occur within 30 days of discovery, although, like in the USEPA policy, discovery is not well defined. The draft policy emphasizes communication and written agreement. The self-reporting entity is encouraged to meet with regulators in person to coordinate future steps. An Audit Agreement must be agreed to describing the violation, the steps to remediate it, and reduction in fines. The violation must be corrected within 60 days of disclosure; although that can be changed in the Audit Agreement.

The New York State draft policy gives the NYSDEC the right to waive the gravity portion of a fine. In addition, it can also reduce the economic benefit portion to a de minimis value and/or allow credit for pollution prevention costs that the entity will spend to prevent recurrence. The draft policy offers additional incentives, such as 50/50 cost sharing for energy upgrades, priority for Small Business Program and other assistance, and being placed as a “Low Priority” as a NYSDEC inspection candidate.

Wisconsin has a program called “Green Tier” which provides incentives to entities that voluntarily improve their environmental performance, irrespective of having a violation or not. The program has two tiers. Tier One participants are entitled to deferred civil enforcement as well as statutorily capped or stipulated fines for violations. The WIDNR promises not to seek penalties for those entities that self-disclose violations and take corrective action. Tier Two participants generally contract for a limited form of immunity from any civil action for self-disclosed violations.

What Should You Do?

The descriptions here demonstrate the many advantages for self-disclosing/correcting environmental violations. Environmental rules applicable to your facility are generally listed in your permits (Title V, etc.). Most environmental rules are science-based (i.e., measurements of certain parameters). Make time to make appropriate measurements to ensure that you are still in compliance with all applicable rules. If you find a violation (for example, excessive quantity of a waste or a composition of a paint), then measure it again and even a third time to make sure the measurements are correct. Even use a second lab, if necessary. Then discuss the potential violation with legal counsel to determine whether this is truly a violation of an applicable rule. Then work with Legal and management on how to approach the USEPA or your state agency to self-disclose the violation to take advantage of the incentives. Finally, take the time to review your monitoring systems that are supposed to indicate your compliance status. Are they functioning properly? Can they be upgraded if a more reliable technology is available?

This article is a technical overview of self-auditing policies. Be sure to consult your legal advisor before making decisions on how to approach these issues. CCES has the experts and experience to assist you in performing a 3rd party environmental audit to determine early on any potential violations for self-reporting. We can design and manage your compliance program and work with you to provide technical (not legal) advice when you deal with the regulatory agency to maximize your approval in the self-auditing rule. We can also help you design a new or upgrade an existing compliance monitoring system to enable you to determine compliance early in the future. Contact us for more information.