On April 11, the Environmental Protection Agency (EPA) published revisions to its "Incentives for Self-Policing Discovery, Disclosure, Correction and Prevention of Violations," more commonly known as EPA's Audit Policy. On that same date, EPA also published revisions to its "Policy of Compliance Incentives for Small Businesses," or Small Business Compliance Policy. The most significant of the revisions, which became effective on May 11, relate to (1) the amount of time that a company has to disclose violations, (2) penalty reduction eligibility in the multi-facility and newly acquired facility contexts, and (3) the means of discovery accepted as "voluntary" in a small business setting.
Changes to the Audit Policy
Prompt Disclosure
Under the Audit Policy as originally promulgated in 1995, a company was not eligible for reduced civil penalties unless it disclosed a violation within 10 days of discovery. The revised policy extends that period to 21 days. Explaining the rationale for this change, EPA has reported that, "[o]ut of the first 274 disclosures received, 53 (or 19%) were late. Approximately half of these late disclosures met all the conditions of the Policy except for the 10-day disclosure period." Moreover, a majority of the late disclosures came 10 to 20 days after discovery. Therefore, EPA reasoned that a 21-day period would capture disclosures by companies attempting in good faith to comply with the Audit Policy but unable to meet the 10-day deadline.
Under the revised Audit Policy, however, EPA has retained its discretion to grant penalty reductions for disclosures made even after the 21-day deadline. For example, a company anticipating a disclosure but not able to meet the 21-day deadline can still take advantage of the Audit Policy if it contacts EPA prior to the expiration of the 21-day period. Likewise, a multi-facility operation planning a company-wide audit can contact EPA beforehand to set up a more flexible disclosure schedule. Finally, a company that fails to make the required disclosure within 21 days of discovering a violation can still obtain partial relief from civil penalties if it qualifies as an "exceptional case" involving complex circumstances that did not allow for timely notice to EPA. Regardless of this continued discretion, however, EPA has also made clear that the 21-day disclosure period applies even to newly acquired facilities and begins to run on the date of discovery by the acquiring party.
Independent Discovery
Another significant revision to the Audit Policy involves EPA's interpretation of the independent discovery requirement. EPA has clarified this requirement in situations where a company operates two or more facilities, one of which is being inspected or investigated by a federal, state, or local environmental agency or by a third party, and another of which wants to disclose a self-discovered violation. The Audit Policy now states that "the fact that one facility is already the subject of an investigation, inspection, information request or third-party complaint does not preclude the Agency from exercising its discretion to make the Audit Policy available for violations self-discovered at other facilities owned or operated by the same regulated entity." Despite this change, however, EPA has added explanatory text encouraging multi-facility companies to make efforts to discover violations before investigation has begun at any of their facilities.
Repeat Violations
EPA has also clarified the Audit Policy's repeat violation provision as it applies to newly acquired facilities. This provision allows a company to pay reduced penalty amounts only if "[t]he specific violation (or a closely related violation) has not occurred previously within the past three years at the same facility, and has not occurred within the past five years as part of a pattern at multiple facilities owned or operated by the same entity." Such a requirement would seem to eliminate a company from Audit Policy eligibility if violations at a newly acquired facility are "closely related" to violations that occurred at that same facility two years ago but under different ownership and management. EPA has now made clear, however, that "the existence of a violation prior to acquisition does not trigger the repeat violations exclusion."
Other Revisions
Other revisions to the Audit Policy include the following:
- satisfaction of the independent discovery requirement even by a facility under civil investigation if the facility did not know of the investigation and otherwise acted in good faith;
- availability of the "no recommendation for criminal prosecution" incentive even when violations are not discovered through systematic means (according to EPA's response to public comment, this change reflects Agency practice over the past four years);
- clarification that companies not eligible for Audit Policy relief may still qualify for penalty reduction under other EPA media-specific policies, provided that they have acted in good faith;
- change in the systematic discovery provision to substitute the term "compliance management system" for "due diligence" (EPA's response to public comment stresses that this change in policy language is not meant to have any substantive effect but rather comports with common usage in the regulated community); and
- clarification that the voluntary discovery provision is met even if the environmental audit or compliance management system that led to the discovery was required as a result of participation in an Agency partnership program such as Project XL.
Small Business Compliance Policy
Like the revised Audit Policy, the revised Small Business Compliance Policy extends the allowable disclosure period from 10 to 21 days. An additional change to the policy should also expand its availability to a greater number of small businesses. That change allows a small business to satisfy the policy's voluntary discovery requirement not only through government-sponsored on-site compliance assistance activities or environmental audits, but also through any other voluntary means. Thus, violations uncovered as the result of a mentoring program or training class, use of compliance checklists or compliance assistance center web sites, or review of reading materials on complying with environmental requirements will all satisfy the voluntary discovery requirement.