Environmental Auditing and Audit Disclosure in a New Era
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
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ENVIRONMENTAL COMPLIANCE AUDITING
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
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AUDIT DISCLOSURE
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
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CHANGING ENFORCEMENT EMPHASIS
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
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CHANGES IN AUDIT POLICY
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
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WHAT DOES THIS MEAN FOR AUDITS AND DISCLOSURE? The path forward . . .
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
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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
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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
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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
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THANK YOU!
TIMWILKINS +1.512.542.2134 tim.wilkins@bracewell.com bracewell.com/wilkins
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