Audit Policy Compared To Audit Privilege or Audit Immunity

Many companies and other regulated entities struggle to balance the benefits and risks associated with conducting environmental compliance audits, and more importantly, what to do if non-compliance issues are uncovered, especially in the context of environmental due diligence.

EPA and numerous States have enacted various “audit policies” to reduce the regulatory risks associated with compliance auditing. An “audit policy” generally applies to the settlement of claims for civil penalties for any violations under environmental statutes. It provides incentives (relief from penalties) when regulated entities discover, disclose, and correct certain types of violations. An audit policy may not cover all types of environmental violations and conditions may exist that limit its applicability.

Some States with Self-Disclosure Audit Policies include:

California
Connecticut
Delaware
Florida
Indiana
Maine
Maryland
Massachusetts
Minnesota
New Mexico
New York
North Carolina
Oregon
Pennsylvania
Tennessee
Vermont
Washington

Improper Waste Disposal Discovered During Facility Audit

An “audit policy” is different than “audit privilege” or “audit immunity”. A number of States have passed self-audit "privilege" and/or "immunity" laws. Most privilege laws protect the disclosure of audit reports. For example, in some states, under specified conditions, an audit report is not admissible as evidence in any civil or criminal proceedings. In most cases immunity state laws, under certain specified conditions, gives a person immunity from fines and in some cases criminal penalties related to non-compliance provided that when the information arises from a self-audit that person makes a voluntary disclosure to the appropriate agency. In exchange, companies may be required to implement pollution prevention and/or an environmental management system.


States with Privilege and/or Immunity Laws include:

Alaska
Arizona
Arkansas
Colorado
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Michigan
Minnesota
Mississippi
Montana
Nebraska
Nevada
New Hampshire
Ohio
Oregon
Rhode Island
South Carolina
South Dakota
Texas
Utah
Virginia
Wyoming

EPA has clearly stated its opposition to statutory and regulatory audit privilege and immunity laws that exist in some states.

More information on Environmental Compliance Audits and Regulatory Compliance Assessment
Caltha LLP assists Sellers, prospective Buyers and their Lenders in meeting Due Diligence, Environmental Site Assessment and Environmental Review requirements. To request a quote on-line, go to Caltha Environmental Assessment Quote Web Page.

For further information contact Caltha LLP at
info@calthacompany.com
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Caltha LLP Website

New EPA Audit Policy Helps New Owners - Extends Liabilities for Sellers

Since 2000, US EPA has offered reduced enforcement for self-disclosure of environmental compliance violations. EPA’s policy document, “Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations” is commonly known as the “Audit Policy”. On August 1, 2008, the EPA published an interim approach to applying the Audit Policy to new owners that allows new owners to make a fresh start with the EPA. With the interim approach, the EPA recognizes that a new owner should not be penalized for the economic benefit component relating to violations that arose before a facility was under its control, as long as the new owner is willing to correct issues promptly and institute preventive measures.

Some key elements of the interim approach include:

• Defining a “new owner” to ensure that the violations disclosed originated with the prior owner, and that the new owner was not responsible for the non-compliance disclosed;
• Extending the time for reporting for up to nine months after closing the transaction;
• Relief from the economic benefit component of the penalty for new owners; and
• Applying five of the nine qualifying conditions differently to the new owner.
  

One of the important aspects of this policy is that non-compliance at the Seller’s facility can be reported to regulatory agencies before or soon after property transfer. In making the disclosure, the new owner can make the previous owner responsible for penalties, etc., especially associated with economic benefit component, related to the non-compliance. This stetches out the liabilities that could be assumed by the previous owner, and makes it more important to assure that facilities are in "material compliance" with applicable regulations.

For further information contact Caltha LLP at
info@calthacompany.com
or
Caltha LLP Website