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Outline of EPA's Audit Policy Including the "Interim Approach"
Printable version of Outline of EPA's Audit Policy Including the "Interim Approach" (PDF) (4pp, 29K About PDF
General Information
EPA's Audit Policy
- Formal Title: Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations
- Citation: 65 FR 19,618 (April 11, 2000)
- Web Site: epa.gov/oecaerth/incentives/auditing/auditpolicy.html
Interim Approach
- Formal Title: Interim Approach to Applying the Audit Policy to New Owners
- Citation: 73 FR 44,991 (August 1, 2008)
- Web Site: epa.gov/oecaerth/incentives/auditing/newowners-incentivessummary.html
Purpose of EPA's Audit Policy and the Interim Approach
EPA's Audit Policy encourages regulated entities to voluntarily discover, disclose, correct and prevent violations of Federal environmental requirements. The Interim Approach describes how EPA will apply the Audit Policy to new owners of regulated facilities. It is designed to motivate new owners to audit newly acquired facilities and to encourage self-disclosures of violations that will, once corrected, yield significant pollutant reductions and benefits to the environment.
Incentives Available Under the Audit Policy
Penalty mitigation - Entities that meet all of the conditions contained in the Audit Policy are eligible for 100% mitigation of all gravity-based penalties. Entities that meet all of the conditions except for "systematic discovery" of violations are eligible for 75% penalty mitigation. EPA retains its discretion to collect any economic benefit that may have been realized as a result of noncompliance.
No recommendation for criminal prosecution - For entities that disclose violations of criminal law and meet all applicable conditions under the Policy, in most cases (see Audit Policy for exceptions) the Agency will refrain from recommending criminal prosecution for the disclosing entity.
No routine requests for audit reports - In general, EPA will not request audit reports from those who disclose under the Audit Policy.
Tailored Incentives for New Owners Available Under the Interim Approach
Who is a "new owner"?
An eligible new owner must certify that:
- Prior to the transaction, it was not responsible for environmental compliance at the facility which is the subject of the disclosure, did not cause the violations being disclosed and could not have prevented their occurrence;
- The violation which is the subject of the disclosure originated with the prior owner; and
- Prior to the transaction, neither the buyer nor the seller had the largest ownership share of the other entity, and they did not have a common corporate parent.
Tailored incentives for new owners
include penalty mitigation beyond what the Audit Policy offers and an expanded range of violations that may be eligible for Audit Policy consideration.
Penalty mitigation -
Applies to new owners that, within 9 months of the transaction closing: promptly disclose violations to EPA, or enter into an audit agreement with EPA, and meet all the conditions of the Audit Policy, as modified for new owners:
- No penalties will be assessed against the new owner for the period before the date of acquisition;
- Penalties for economic benefit associated with avoided operation and maintenance costs will be assessed against the new owner, but only from the date of acquisition; and
- No penalties for economic benefit associated with delayed capital expenditures or with unfair competitive advantage will be assessed against the new owner if the violations are corrected in accordance with the Audit Policy (i.e., within 60 days of discovery or another reasonable timeframe to which EPA has agreed).
To Make a Disclosure under the Audit Policy
Disclosures of civil violations should be made to the EPA Region in which the entity or facility is located or, where multiple Regions are involved, to EPA Headquarters. For more information, contact Philip Milton (202-564-5029) or Caroline Makepeace (202-564-6012).
Disclosures of criminal violations should be made to the appropriate EPA criminal investigation division, to EPA Headquarters, or to the U.S. Department of Justice. For more information, contact James Morgan (202-564-7684).
Conditions of the Audit Policy
Entities that satisfy the following conditions are eligible for Audit Policy benefits. (Note: entities that fail to meet the first condition - systematic discovery - are eligible for 75% penalty mitigation and in most cases (see Audit Policy) no recommendation for criminal prosecution).
- Condition 1: Systematic discovery of the violation through an environmental audit or a compliance management system.
- Condition 2: Voluntary discovery, that is, not through a legally required monitoring, sampling or auditing procedure.
- Condition 3: 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).
- Condition 4: 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.
- Condition 5: Correction and remediation within 60 calendar days, in most cases, from the date of discovery.
- Condition 6: Prevent recurrence of the violation.
- Condition 7: 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.
- Condition 8: 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.
- Condition 9: Cooperation by the disclosing entity is required.
Modification to Audit Policy Conditions for New Owners
For new owners, modifications to the following 5 of 9 conditions of the Audit Policy will make disclosures of additional categories of violations eligible for Audit Policy penalty mitigation:
- Systematic Discovery - Condition 1: Because EPA recognizes that a new owner's pre-closing due diligence is by its nature a one-time event, EPA will waive the "periodic" element of this condition for violations discovered through pre-acquisition due diligence, and allow such disclosures to be considered for full penalty mitigation.
- Voluntary Discovery - Condition 2: For new owners, EPA will expand its interpretation of the Voluntary Discovery condition to allow consideration of all violations which would otherwise be ineligible for Audit policy consideration because they are already required to be identified through a legally mandated monitoring, sampling or auditing protocol, and thus not "voluntarily discovered." New owners that enter into an audit agreement or disclose violations before the first instance when the monitoring, sampling or auditing is required would not be disqualified based on this condition.
- Prompt Disclosure - Condition 3: The Audit Policy provides that violations must be promptly disclosed in writing, within 21 days of discovery. For violations discovered pre-closing, a new owner would have up to 45 days after closing to disclose violations. For violations discovered post-closing, a new owner would have to disclose violations within 21 days after discovery or within 45 days after the transaction closing, whichever time period is longer. In the busy period just after acquisition, this will give new owners a little more time to decide and prepare to come forward with due diligence findings.
- Other Violations Excluded - Condition 8: The Audit Policy excludes violations that resulted in serious actual harm or may have presented an imminent and substantial endangerment. Where violations that gave rise to serious actual harm or an imminent and substantial endangerment began before the new owner acquired the facility, EPA will allow such violations to be eligible under the Interim Approach, absent a fatality, community evacuation or other seriously injurious or catastrophic event. This should encourage new owners to come forward and correct significant violations, which is one of the goals of this approach.
- Cooperation Condition - Condition 9: EPA is modifying the Cooperation condition of the Audit Policy only to make clear that the disclosing entity must cooperate with EPA in determining whether all Audit Policy conditions - as they have been modified by this Interim Approach - have been met.
EPA will apply and interpret all other Conditions of the Audit Policy as described in the 2000 Audit Policy (refer to Conditions 4 through 7 above). - For more information: Regarding the Interim Approach or Federal Register Notice: contact Caroline Makepeace (makepeace.caroline@epa.gov or 202-564-6012). Regarding new owner disclosures or audit agreements: contact Philip Milton (milton.philip@epa.gov or 202-564-5029) or Caroline Makepeace.