Environmental Auditing and Audit Disclosure in a New Era


Environmental Essentials for In-House Counsel Webinar Series

Presented by: Tim Wilkins May 2, 2017

OVERVIEW • Background on environmental compliance auditing • Background on audit policies and audit disclosure • Changes in enforcement emphasis • Changes in audit policies and disclosure options • Thoughts on what to audit, how to prepare audit reports, and when and how to pursue audit disclosure



ENVIRONMENTAL COMPLIANCE AUDITING - BACKGROUND • There are important consequences to non-compliance • Compliance assurance becomes an important function • Auditing as a “checkup” – tool for validation of programs and efforts • Increasingly utilized over past 20-25 years, profession and standards • Develop protocols from applicable statutes, regs, and permit terms and assess • Legally loaded: identifying and documenting gaps in legal compliance ‒ The proverbial “case on a silver platter” • Serious industry concerns throughout the 1990s



AUDIT DISCLOSURE • EPA and many states developed policies and even statutes – “find, fix, and disclose” in exchange for penalty leniency • Self-disclosure to minimize consequences is not a novel concept but, moreso than other fields, it was formalized in the enviro context • Different regulators, standards and processes, information needs, timelines, etc. but the concept is fairly universal ‒ If you’re at risk of enforcement from a regulator and you identify a gap through a voluntary audit, you’ll want to consider audit disclosure where available • Some programs are heavily utilized, others rarely so – for a variety of reasons



CHANGING ENFORCEMENT EMPHASIS • History of “retail enforcement” • More recent outcomes-based enforcement targeting ‒ Likely no going back from the targeting of larger sources – priority • Changing enforcement tools: focus on required reporting, electronic paper trail, advanced technologies, information requests ‒ Trend toward “desktop enforcement” • Although new Administration seems more focused on rule of law than outcomes-based initiatives, “desktop” is likely to dominate ‒ Easier cases to make when it’s literally black and white ‒ Budget/FTE/Resource constraints



CHANGES IN AUDIT POLICY • Most state laws and policies are largely unchanged, but EPA last year moved its Audit Policy into an “eDisclosure” system – online portal • Excepting some straightforward EPCRA disclosures and new owner audits, you don’t get an answer ‒ It’s just a prophylactic filing in the event the agency later pursues enforcement • EPA responsiveness to audit disclosures was always spotty, but it’s now unresponsive by design • If you don’t get an answer until they’ve already decided to enforce, how likely are they to honor the disclosure? • Leaves a high level of uncertainty over an indefinite period



WHAT DOES THIS MEAN FOR AUDITS AND DISCLOSURE? • Putting it all together, enforcement exposure continues to be strong ‒ Focus will continue on larger emitters/dischargers ‒ Continuing/increasing reliance on paper trail and electronic record ‒ Advanced technologies and citizen-collected evidence ‒ Enhanced use of information request authorities to simplify agency efforts ‒ Auditing continues to be crucial and audit disclosure continues to be an important, if somewhat less definitive, tool to consider • Auditing continues to create legal/evidentiary risk ‒ Carefully consider the use of available privileges – increased importance ‒ Carefully counsel auditors on appropriate reporting practices • Audit disclosure provides somewhat less protection than it had


WHAT DOES THIS MEAN FOR AUDITS AND DISCLOSURE? • What does the evolution in enforcement approaches suggest for your audit program and your audit protocol? ‒ Looking for confessions or anomalies in reporting: deviation reports, emissions inventories, NORs, DMRs, RQ release and other emissions events ‒ Using advanced technologies to spot potential concerns from the air, the fenceline, up and down stream, and during on-sites – “facts, not factors” ‒ Your cyber footprint will be treated as gospel despite its questionable quality ‒ Enhanced information requests – not “just the facts” – more demands for records, as well as requests for admissions, requests to develop evidence • Audits as an inspection-readiness tool require adapting to these new realities


WHAT DOES THIS MEAN FOR AUDITS AND DISCLOSURE? • Need to minimize reportable events and issues, ensure precision and care in reporting – how do you audit for that? • Need to be prepared for advanced monitoring – how? • Need to know your cyber footprint and how it compares to the reality on the ground – how? • Need to consider how audit-related information plays into your response to potential enhanced information requests – how do you test that scenario? • In short, “checkbox” lists of regs and permit limits are only half the battle – reimagine your approach to compliance assurance and audits


WHAT DOES THIS MEAN FOR AUDITS AND DISCLOSURE? • Audit statutes like the Texas EHS APA continue to be vital and important, especially with anticipated federal deference to states • EPA’s Audit Policy and eDisclosure continues to offer some benefit but it’s even less certain than before – use it where there’s a real reason • These “new” approaches to auditing may be less amenable to discrete “findings” and “disclosures” tied to specific statutory, regulatory, or permit violations • Need to think very carefully about what, how & to whom to disclose • Reexamine assumptions underlying your traditional effective compliance auditing program and whether it’s still a fit now



TIMWILKINS +1.512.542.2134 tim.wilkins@bracewell.com bracewell.com/wilkins

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This presentation is provided for informational purposes only and should not be considered specific legal advice on any subject matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. The content of this presentation contains general information and may not reflect current legal developments, verdicts or settlements. Use of and access to this presentation does not create an attorney-client relationship between you and Bracewell.

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