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Environmental Self-Auditing Explained, with Links to Current State Regulations

Environmental Auditing

Environmental auditing used to be conducted only by firms that were already in the environmental "fishbowl", such as large chemical manufacturers and hazardous waste disposal companies. But recent changes in audit privilege, and the move toward environmental management systems, such as ISO14000 have resulted in changing attitudes and policies from government agencies. The EPA has published policies to protect self-audits which you can download here.

Some reasons to consider conducting an environmental self-audit are:

  • Privilege and immunity legislation for environmental audits now exists in at least eighteen states and bills are pending in many other states, as well as in the U.S. House and Senate. Privilege and immunity legislation encourages auditing by ensuring that audit results will not be used against the environmentally-responsible company.
  • Between January and March 1996, more than 50 companies voluntarily disclosed violations under EPA's most recent environmental auditing policy statement. EPA waived penalties in 12 of the 13 cases it settled. EPA imposed a greatly reduced penalty in the other case.
  • Environmental audits allow a company to identify present and potential compliance problems and tackle them before they mushroom and lead to liability or penalties. Risk management is essential in today's complex regulatory environment.
  • Increased awareness about your company's environmental management procedures can help the company devise strategies to improve manufacturing processes and achieve cost-savings.
  • As always, companies should take the ethical road and help protect our environment and human health.

EPA Policies

The EPA Audit Policy, "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations", has been in effect since 1995. It safeguards human health and the environment by providing incentives for regulated entities to come into compliance with the federal environmental laws and regulations. The policy was designed to provide major incentives for regulated entities that voluntarily discover, promptly disclose, and expeditiously correct noncompliance, rendering formal EPA investigation and enforcement action unnecessary. The Audit Policy reflects the input of industry, trade associations, state environmental program practitioners, and public interest groups.

Disclosures are often preceded by consultations between EPA and the regulated entity, so that mutually acceptable disclosure details, and compliance and audit schedules can be discussed. If policy conditions are met, most penalties may be waived, and further civil or criminal prosecution may not be pursued.

Incentives for Self-Policing Under the Audit Policy

  • No gravity-based penalties for disclosing entities that meet all nine Policy conditions, including "systematic discovery" of the violation through an environmental audit or a compliance management system. Gravity-based penalties are that portion of the penalty over and above the economic benefit. In general, civil penalties that EPA assesses are comprised of two elements: the economic benefit component and the gravity-based component. The economic benefit component reflects the economic gain derived from a violator's illegal competitive advantage. Gravity-based penalties are that 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. EPA retains its discretion to collect any economic benefit that may have been realized as a result of noncompliance.
  • Reduction of gravity-based penalties by 75% may be granted to entities that meet all of the conditions except for "systematic discovery" of the violation through an environmental audit or a compliance management system.
  • No recommendation for criminal prosecution for entities that disclose violations of criminal law and meet all applicable conditions under the policy. "Systematic discovery" is not required to be eligible for this incentive, although the entity must be acting in good faith and adopt a systematic approach to preventing recurring violations. EPA generally does not focus its criminal enforcement resources on entities that voluntarily discover, promptly disclose and expeditiously correct violations, unless there is potentially culpable behavior that merits criminal investigation. When a disclosure that meets the terms and conditions under the Audit Policy results in a criminal investigation, EPA generally will not recommend criminal prosecution for the disclosing entity, although the Agency may recommend prosecution for culpable individuals and other entities.
  • No routine requests for audit reports from entities who disclose under the Audit Policy. In general, EPA will refrain from routine requests for audit reports. However, if EPA has independent evidence of a violation, it may seek the information it needs to establish the extent and nature of the violation and the degree of culpability.

Conditions for Penalty Mitigation

Entities that satisfy the following conditions are eligible for Audit Policy benefits. Even if your entity fails to meet the first condition - systematic discovery - you can still be eligible for 75% penalty mitigation and for no recommendation for criminal violations.

  • Systematic discovery of the violation through an environmental audit or a compliance management system.
  • Voluntary discovery , that is, not through a legally required monitoring, sampling or auditing procedure.
  • Prompt disclosure in writing to 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 EPA likely would 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 , that is, those that have occurred at the same facility within the past 3 years or those that have occurred as part of a pattern of violations within the past 5 years at another facility(ies) owned or operated by the same company; if the facility has been newly acquired, the existence of a violation prior to acquisition does not trigger the repeat violations exclusion.
  • Certain types of violations are ineligible - 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 judicial order or consent agreement.
  • Cooperation by the disclosing entity is required.

Please refer to the Audit Policy, "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations", 65 FR 19,618 (April 11, 2000) (PDF, KB, 49 pages) for a more detailed discussion of eligibility and the application of the Audit Policy. Additional information about the Audit Policy and its use is available at the following:

Audit Policy

Audit Policy (PDF 88 KB) Policy on Incentives for Self-Policing, which provides potential penalty reductions for voluntary discovery and correction of environmental violations.

Audit Protocols

The Small Business Compliance Policy (PDF 43 KB) Effective date May 11, 2000. Sets out what makes a small business eligible for the elimination or reduction of penalties for violations that are voluntarily discovered, disclosed and corrected.

The Small Business Compliance Policy Fact Shee t: (PDF 75 KB) Summarizes the criteria in the Small Business Compliance Policy and provides EPA Regional contacts

Compliance Monitoring and Inspection Manuals

Federal Facilities

In addition to the foregoing 11 audit protocols, Federal agencies and facilities have available a "how-to" manual, the Environmental Audit Program Design Guidelines for Federal Agencies, Spring 1997 (PDF, 598 KB) , which offers guidance on designing and implementing environmental compliance auditing programs.

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