On February 5, 2021, EPA posted on its website updated Frequently Asked Questions (FAQs) in connection with its Audit Policy Program. EPA’s Audit Policy, first created in 1995, provides important incentives for regulated entities to voluntarily discover and correct violations of federal environmental laws and regulations. To encourage the voluntary discovery, disclosure, correction, and prevention of environmental violations, the Audit Policy offers companies a 100 percent reduction of gravity-based civil penalties, as well as a recommendation for no criminal prosecution, when all of EPA’s eligibility conditions are met. In many instances, voluntary self-disclosures submitted under the Audit Policy Program framework achieve full mitigation of penalties that might otherwise be assessed at many millions of dollars.
The new FAQs issued at the beginning of the Biden Administration show that EPA will continue to support the Audit Policy and encourage the proactive, voluntary self-disclosure and correction of violations. These FAQs expressly supersede previous EPA interpretative guidance of the Audit Policy. The new FAQs incorporate earlier interpretations that remain relevant and offer additional clarifications based on the Agency’s experience with the Audit Policy Program over the last several decades. According to EPA, the updated guidance was specifically developed as part of its most recent effort, announced in May 2018, to encourage continued and expanded use of the Audit Policy’s self-disclosure tools. At that time, EPA noted that it had seen more than a 75 percent increase in the number of annual self-disclosures since the introduction of the online “eDisclosure” program in 2015, and committed itself to clarifying several features of its self-disclosure policies in response to some “common misconceptions” in the regulated community.
Eligibility for penalty mitigation under the Audit Policy is based on satisfying nine specific conditions, including systematic and voluntary discovery of the violation, and prompt disclosure and corrective action. Companies that use the Audit Policy are also required to certify compliance, either through the eDisclosure portal or a new owner audit agreement, where available. The FAQs address each of these conditions, and also include specific sections focused on new owner audits (the Audit Policy encourages new facility owners to address environmental noncompliance that began prior to acquisition), utilization of the eDisclosure portal, and small business compliance.
Repeat violations are not eligible for Audit Policy application; neither are violations that result in serious actual harm or that may have presented an imminent and substantial endangerment. In our experience, very few violations disclosed and corrected under EPA’s Audit Policy are rejected for either of these reasons, as the agency emphasized in publishing the new FAQs.
In particular, the updated FAQs note that, between 1995 and 2020, EPA found that an entity had not satisfied the “no repeat violations” condition due to a “corporate pattern” in less than one percent of all cases. EPA reaffirmed in the updated FAQs that its review of voluntary disclosures is primarily focused on “significant concerns such as criminal conduct and potential imminent hazards.”
The FAQs also note another important program Audit Policy metric: that of the nearly 28,000 facilities disclosing noncompliance with federal environmental laws to EPA between 1995 and 2020, EPA denied Audit Policy Program penalty mitigation based on “serious actual harm” or “imminent and substantial endangerment” less than a dozen times. According to EPA, one of those instances involved a release that required community evacuation of the surrounding area, while another involved the death of an employee.