© 2005 Powell Goldstein LLP. All rights reserved. Practical Pointers for Using EPA’s Audit Policy Matthew Mattila

EPA’s Audit Policy “Incentives for Self Policing: Discovery, Disclosure, Correction and Prevention of Violations” “Incentives for Self Policing: Discovery, Disclosure, Correction and Prevention of Violations” [65 Fed. Reg. 19,618 (04/11/00)]. See also: See also:

Purpose: Penalty Mitigation

Penalty Mitigation  Civil Penalty = Economic Benefit + Gravity Based Penalty  Avoid “Gravity-Based” Penalties  “portion of the penalty over and above the economic benefit. They reflect the egregiousness of the violator’s behavior and constitute the punitive portion of the penalty”  Pay only the “Economic Benefit”  “economic gain derived from a violator’s illegal competitive advantage”

Why Does EPA Continue To Penalize Economic Benefit?  Encourages timely compliance  Preserves “level playing field” between competitors

Nine (9) Conditions of Audit Policy 1. Systematic Discovery through Environmental Audit or Compliance Management System 2. Voluntary Discovery 3. Prompt Disclosure: 21 days from date of discovery 4. Independent Discovery and Disclosure 5. Correction and Remediation: 60 days from date of discovery 6. Prevent Recurrence 7. No Repeat Violations 8. Violations cannot “result in serious actual harm to the environment “or present “an imminent and substantial endangerment to public health or the environment.” 9. Cooperation with EPA

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 1. Plan Ahead!!! COST In-house or Outside Regulatory Scope How Many Lawyers How Many Consultants Geographic Scope

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 2. Consider Corporate Audit Agreement Exchange of LettersExchange of Letters Formal AgreementFormal Agreement

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 3. Auditor Considerations In-house Audit –or– Outside Consultant?In-house Audit –or– Outside Consultant?  Cost Considerations  Timing Considerations  Bias How many auditors?How many auditors?  Fewer is better

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 4. Define Role of Consultant and Lawyer Consultant: Consultant:  Field identification of potential noncompliance  Identify specific federal and state regulations  Field verify correction of noncompliance Lawyer: Lawyer:  Compare consultant’s draft findings against the identified regulations  Apply Audit Policy Criteria  Coordinate communications with EPA.

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 5. N avigating the “prompt disclosure” requirement 21 days after discovery “that a violation has, or may have, occurred” Objective Standard ““““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.”

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 6. Navigating the 60 day “correction” requirement Must correct within 60 days “or as expeditiously as possible”Must correct within 60 days “or as expeditiously as possible” Request extension before expiration of 60 daysRequest extension before expiration of 60 days  “EPA may allow an extension for corrections that require significant expenditures, involve technically complex issues, or involve decisions for which an entity seeks or is required to obtain EPA or State input or approval.” [04/30/07 Guidance, Q3 at p.2]

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 7. Understand what it means to have “Repeat Violations” Violation: “Any violation of Federal, State or local environmental law identified in a judicial or administrative order, consent agreement or order, complaint, or notice of violation, conviction or plea agreement”; or “Any act or omission for which the regulated entity has previously received penalty mitigation from EPA or a State Agency”

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY Repeat Violations (cont’d)… Violation cannot be same or “closely-related” to prior violation Violation cannot be same or “closely-related” to prior violation Violation cannot be within past 3 years (or within past 5 years as “part of a pattern” at multiple facilities) Violation cannot be within past 3 years (or within past 5 years as “part of a pattern” at multiple facilities)  Identify when notice of old violation is given  Identify when the new violation occurred what is a “pattern”? what is a “pattern”?  ”EPA will not deny Audit Policy treatment to subsequent violations if the disclosing company has, after being put on notice by its prior disclosure(s) or enforcement action(s), taken appropriate actions to address comprehensively the cause or causes of the previous violations.” [04/30/07 Guidance, Q4 at p.4]

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 8. Hurry up and wait Anticipate Agency InspectionsAnticipate Agency Inspections  Federal and State Anticipate Self-Discovery of ViolationsAnticipate Self-Discovery of Violations

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 9. Negotiating the Consent Agreement Anticipate Boilerplate “Pre-Approved” Language Anticipate Boilerplate “Pre-Approved” Language Anticipate Certification Provisions: Anticipate Certification Provisions:  Audit Policy conditions have been met  “Violations have been corrected and the Respondent is, to the best of its knowledge and belief, in full compliance….”  “Respondent has no knowledge that violations other than those covered in this Agreement (or closely related violations), have occurred within the past three years at the same facilities.”

PRACTICAL POINTERS FOR USING EPA’S AUDIT POLICY 10. Consult Audit Policy Resources: Audit Policy: 65 Fed. Reg. 19,618 (04/11/00) Audit Policy: 65 Fed. Reg. 19,618 (04/11/00) 1997 and 2007 Guidance: 1997 and 2007 Guidance:  Audit Policy Interpretive Guidance (January 1997)  Audit Policy: Frequently Asked Questions

Practical Pointers for Using EPA’s Audit Policy Matthew Mattila