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Regulatory: EPA shifts resources away from its audit policy

But incentives for self-disclosure of noncompliance remain … for now

This year the Environmental Protection Agency (EPA) has announced its “next generation” enforcement strategy purportedly aimed at improving compliance with environmental laws. Faced with fewer resources, EPA will have to do more with less—trying to improve compliance with rules and permitting requirements, improving transparency, and adopting innovative enforcement approaches, all in the face of an ever-diminishing budget. One would think that in this context, EPA would be relying even more heavily on the self-disclosure program to ensure that regulated sources and entities have incentive to self-police, audit and report any identified noncompliance. But EPA is taking the precise opposite approach.

In the fiscal year 2013 National Program Manager Guidance, EPA’s Office of Enforcement and Compliance Assurance (OECA) has indicated that it will reduce its Audit Policy/Self-Disclosures program work to a “limited national presence” and that it is considering several options, and accepting input from the regions, OECA offices, states and tribes, as it reduces investment in the program. While acknowledging that the self-disclosure program has yielded a significant number of disclosures, EPA justifies this divestment of resources by observing that the environmental benefit from the self-disclosure program is significantly less than from traditional enforcement, and is not focused on EPA’s highest priority areas. And even more unexpectedly, EPA representatives have now announced in a public forum that EPA intends to repeal the audit policy by the end of this year. EPA has not revealed what, if anything, will take its place.  

EPA’s dramatic shift misses the point. For an enforcement program to be fully effective, it cannot rely on so-called traditional enforcement alone—that is, civil, judicial and administrative enforcement. After all, not every instance of noncompliance is a “federal case.” There is little doubt that traditional enforcement plays an important deterrence role in any enforcement program and is necessary to address the most egregious conduct. But for an enforcement program to be fully effective, it must provide incentive to the regulated community to comply with the day-in, day-out requirements of the many environmental rules. While inspections by federal and state regulators can and do incentivize regulated entities to comply with the law, the self-disclosure program has also proven to be an effective incentive program. To date, regulated entities have submitted thousands of self-disclosures in important, yet understaffed, federal programs—for example, under the Emergency Planning and Community Right-to-Know Act; Toxic Substances Control Act; and the Federal Insecticide, Fungicide, and Rodenticide Act.

So what is a company to do in the face of the agency’s divestment of its self-disclosure resources and impending repeal of its audit policy? Continue to self-disclose while you can. EPA has not yet repealed its audit policy, so it remains effective, along with the incentives for self-disclosure: up to 75 percent reduction or elimination of gravity-based penalties, no recommendations for criminal prosecution (generally), and no routine requests for audit reports from EPA. The benefits can be significant. The vast majority of past disclosures meeting the policy’s conditions—more than 93 percent of them—resulted in no civil penalty assessment at all.

Before EPA revealed that it would announce the repeal of its audit policy by the end of the year, it was thought that EPA may modify its audit policy to narrow its scope to focus only on disclosures addressing pollution reductions or sector-wide noncompliance, or that it may take steps to reduce the burden on both the disclosing entity and EPA by streamlining the application and approval process through increased reliance on its eDisclosure System. In any event, EPA is extremely unlikely to devote resources to the processing of disclosures in the next few months. Consequently, a disclosing entity should not expect a prompt response, or any response at all, to a self-disclosure. Nonetheless, until the self-disclosure policy is repealed, self-disclosure of noncompliance will still provide significant benefits: Self-disclosing noncompliance covers your bases in case of a future audit or enforcement action, preserves your ability to receive self-reporting credit in the future, and helps you maintain a positive relationship with EPA. Take advantage of it while you can.

Contributing Author

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Adam M. Kushner

Adam Kushner is a partner in Hogan Lovell’s environmental practice with more than 28 years of experience in all aspects of environmental regulation and...

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