eDisclosure to Modernize Implementation of the EPA's Audit Policy
AuthorJoseph R. Brendel
The United States Environmental Protection Agency ("EPA") recently announced plans to modernize the implementation of its Audit Policy through a new centralized, web-based system called eDisclosure. The automated eDisclosure portal is intended to streamline the self-reporting process by allowing businesses with some of the more routine types of violations to get their disclosures resolved promptly. Currently, a company that self-reports violations under the Audit Policy might wait months before the EPA even acknowledges receipt of the company's self-disclosure.
The EPA has publicly stated that it wants to continue to encourage companies to take advantage of the Audit Policy's benefits and to self-police, disclose, correct and prevent violations using this enforcement tool. The Audit Policy provides penalty mitigation and other incentives for companies that discover, properly disclose and expeditiously correct environmental violations, and take steps to prevent future violations. In order to qualify for the policy's incentives, companies must satisfy the following nine conditions:
- Systematic Discovery: violations must be discovered systematically through an environmental audit or a compliance management system.
- Voluntary Discovery: violations must be discovered voluntarily, or by means not otherwise legally required by permit, statute, regulation or consent agreement.
- Prompt Disclosure: violations must be promptly disclosed within 21 days of discovery.
- Independent Discovery: violations must be discovered independently of action by a governmental or third-party plaintiff.
- Correction: violations must be promptly corrected within 60 days of discovery, unless the EPA is notified before that time that additional time is necessary.
- Prevent Recurrence: steps must be taken to prevent recurrence of the violation.
- Repeat violations are ineligible: those that have occurred at the same facility within the past three years or those that have occurred as part of a pattern of violations within the past five years at another facility owned or operated by the same company.
- No Actual Harm: the violation must not be one that presented an actual and imminent danger to human health or the environment.
- Cooperation: the entity must cooperate with the EPA to allow the agency to determine the Audit Policy's applicability.
The incentives for companies that satisfy the above conditions are as follows:
- No gravity-based penalties for disclosing entities that meet all of the policy conditions. Gravity-based penalties reflect the egregiousness of the violator's behavior and constitute the punitive portion of the penalty. The EPA still retains its discretion to collect any economic benefit that may have been realized as a result of the noncompliance.
- Reduction of gravity-based penalties by 75% for entities that meet all of the conditions except for "systematic discovery" of the violation through an environmental audit or a compliance management system.
- No recommendation for criminal prosecution for entities that disclose violation of criminal law and meet all of the conditions under the policy. However the EPA may recommend prosecution for culpable individuals and other entities.
- No routine requests for audit reports from entities who disclose under the Audit Policy.
Companies have used the Audit Policy for more than 15 years to obtain forgiveness of potentially significant gravity-based civil penalties. Clark Hill PLC has assisted a number of clients with establishing compliance audit programs and environmental management systems, and with self-reporting discovered non-compliance to the EPA under the Audit Policy. By way of example, Clark Hill attorneys assisted a telecommunications company in self-reporting violations of several environmental statutes pursuant to the Audit Policy. The negotiated consent agreement resulted in the EPA's waiver of approximately $675,000 in gravity-based civil penalties, with the negotiated civil penalty representing recovery of economic benefit being less than $10,000.
Given these attractive incentives, it is not surprising that many companies have self-reported under the Audit Policy, particularly in situations where the self-disclosing company realized little or no economic benefit from its non-compliance. That is typically the case with disclosures involving paperwork violations such as failure to submit required reports. As a result, about half of the disclosures received by the EPA involve reporting violations under the Emergency Planning and Community Right-to-Know Act ("EPCRA").
The EPA also notes that it is easy to confirm compliance with EPCRA reporting requirements such as submittal of Toxic Release Inventory ("TRI" or "Form R") reports, which already are submitted electronically. Accordingly, the EPA's new eDisclosure system initially will focus on prompt resolution of such EPCRA violations. Self-reporting of most EPCRA violations that meet all of the Audit Policy conditions will result in the automatic issuance of an electronic Notice of Determination ("eNOD") confirming that the violations are resolved with no assessment of civil penalties, conditioned on the accuracy and completeness of the submitter's eDisclosure.
For the balance of self-reported violations (all non-EPCRA violations; EPCRA violations where the discloser cannot certify to systematic discovery; and excluded EPCRA/CERCLA violations), the eDisclosure system will automatically issue an Acknowledgement Letter noting the EPA's receipt of the disclosure and promising that the EPA will make a determination as to eligibility for penalty mitigation if and when it considers taking enforcement action for environmental violations.
In terms of timing, the EPA plans to finish building and testing the eDisclosure portal during the Summer and Fall of 2015. The EPA intends to publish a Federal Register notice launching and describing the eDisclosure portal in the Fall of 2015. In order to address a perceived backlog of agency action on existing EPCRA self-disclosures, the EPA will allow regulated entities with pre-existing unresolved EPCRA disclosures to resubmit their disclosures under the eNOD track through the eDisclosure system within 90 days after the EPA launches the portal (in such cases, the discloser must certify that it corrected its violations within 60 days of when they were discovered).
The EPA's planned development and launch of its eDisclosure portal is welcome news for environmental practitioners and their clients who desire to continue to take advantage of the significant penalty mitigation incentives available through the EPA's Audit Policy. This development is particularly significant because the Audit Policy reportedly was targeted by the EPA for abandonment in 2012. Given the enhanced protection available to businesses that conduct an environmental audit or use a compliance management system, clients should consider adopting one of these protective measures.
If you have any questions regarding the EPA's Audit Policy or the planned eDisclosure portal, please contact Environment, Energy & Natural Resources attorney Joseph R. Brendel at (412) 394-2373 | firstname.lastname@example.org or your Clark Hill attorney.
 The Audit Policy is formally titled "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations", 65 Fed. Reg. 19,618 (April 11, 2000).
 EPCRA violations with significant economic benefit (as defined by EPA) as well as CERCLA 103/EPCRA 304 chemical release reporting violations are not eligible for issuance of an eNOD.
 See footnote 2.