EPA Issues Guidance on its Audit Policy
Beveridge & Diamond, P.C. - Texas Environmental Update, May 2007
On April 30, 2007 EPA issued a clarification of its Audit Policy through a list of ten “Frequently Asked Questions” (“FAQs”). See, “Issuance of “Audit Policy: Frequently Asked Questions”” Memorandum from Granta Y. Nakayama, Assistant Administrator, Office of Enforcement and Compliance Assurance (OECA) to EPA Regional Administrators. The FAQs are intended to confirm the Agency’s interpretations of the Policy and respond to issues frequently raised by industry since the Policy’s inception in 1995.
The FAQ’s focus on the meaning of the “No Repeat Violations” exclusion and use of the Audit Policy by new facility owners, an area of particular concern to the Agency.1 Highlights include:
- No-Repeat Violations/Corporate Pattern Exclusion: EPA clarifies that the corporate pattern exclusion does not preclude an entity from disclosing numerous violations discovered as part of a single audit under the Policy. EPA also states that it identifies a “pattern” based on the nature, timing, and context of a discovery, rather than the number of violations disclosed at any one time. Thus, if violations are discovered as part of one effort and disclosed together, EPA views those as one violation, and not a corporate pattern.
Similarly, if an entity discovers a violation at one facility and has reason to believe the violation is occurring at other similar facilities, the corporate pattern exclusion would not preclude an entity from disclosing the additional violations sequentially, provided the disclosures are part of a single, comprehensive examination of similar violations across all facilities.
Further, EPA stated that it will not deny Audit Policy credit to entities that appropriately respond to prior violations. If an entity has been put on notice by a prior disclosure or enforcement action, taken appropriate steps to address and prevent the violation, and a subsequent violation nevertheless occurs, EPA will not view the subsequent violation as part of a corporate pattern.
- New Owners: Several questions address use of the Audit Policy by new owners of facilities. In contrast to owners of existing facilities, EPA clarifies that owners of new facilities may disclosure violations discovered under Title V of the Clean Air Act (“CAA”) provided the new owner notifies EPA prior to submission of its first annual compliance certification. EPA also states that the exclusion for repeat violations would not preclude disclosures by owners of newly acquired facilities irrespective of the disclosing entity’s compliance history at other facilities. Finally, EPA also notes that it is “committed to examining the appropriate assessment of economic benefit” in the acquisitions context, suggesting that it may be evaluating the appropriateness of assessing economic benefit penalties against new owners for past violations of newly acquired facilities.
The FAQ’s also address other key issues, among others: use of corporate-wide auditing agreements; extension of the 60-day corrective period; the meaning of “imminent and substantial endangerment” exclusion; and the effect of past or on-going litigation related to other matters. To view a copy of the FAQ document, please click here.2
For a printable PDF of this article, please click here.
1 In a separate action, EPA formally requested formal comments on its policy to encourage new owner disclosures and may institute a pilot program to determine its effectiveness. 72 Fed. Reg. 27,116 (May 14, 2007). EPA is currently seeking comments on, (1) whether tailored incentives should be offered to new owners, (2) how to determine who is a new owner, (3) what incentives should be offered, and (4) if incentives are offered, how should EPA determine their effectiveness. Id. at 27,120. Comments may be submitted in writing through July 13, 2007. Comments will also be heard at two public meetings held on June 12, 2007 in Washington, D.C., and June 20, 2007 in San Francisco. Id.
