Environmental Alert: Environmental Audits - A Key Risk Management Tool for the Regulated Community

As the regulated community continues to expect an increase in regulation-related environmental matters, now is the time to implement risk management tools to guard against potential liabilities. A key risk management tool to ensure compliance with environmental laws and regulations is the incorporation of a robust environmental compliance program, which should include regular internal environmental audits of a facility and its operations.

An environmental audit is performed by a third party to identify statutory, regulatory, and permit requirements that are applicable to a facility and provide an evaluation of how the facility is performing relative to the applicable requirements, identifying any compliance gaps. There are many reasons to perform an environmental audit at a facility. An audit may be performed to satisfy specific requirements or certification obligations, prepare a facility for sale or acquisition, or identify and assess compliance issues voluntarily, rather than during an inspection. By performing an environmental audit voluntarily, the facility can detect and correct potential violations before the violation is discovered by a regulator.

An environmental audit may be a full facility multi-media audit, or it may be narrow in scope to only focus on a single regulation or process at the facility. In general, an environmental audit is a review of compliance with- and implementation of applicable environmental regulations. The auditor will observe plant operations, processes and systems; confirm necessary permits have been obtained and are being complied with; confirm compliance with applicable environmental rules and regulations; evaluate notifications, reporting, training, inspection, and recordkeeping documents; review historic records and compliance history; assess risks of facility operations and propose corrective actions; and, if desired, document findings in a report.

The question of whether to document the findings of an environmental audit in a report is a common one, but there are many reasons to have a formal report prepared. For instance, a formal report may be required if the audit is part of a certification program, or a report could be needed if the company elects to utilize a state or federal self-disclosure policy (which will be discussed in greater detail below). However, a written report could create significant legal risk, especially if there are environmental compliance gaps discovered during the audit. By consulting counsel in advance of performing an audit the report can be structured so that it is protected by the attorney-client privilege. 

If an internal environmental audit identifies compliance gaps, the U.S. EPA and many states have enacted audit self-disclosure policies that provide incentives for voluntarily discovering, correcting, and disclosing environmental compliance issues. The policies vary on the state and federal level. Generally, self-disclosure policies may offer civil penalty reduction (or elimination), protection from criminal prosecution, and/or privilege and confidential status to the audit report and any related communications. To take advantage of these programs, specific conditions must be satisfied, including prompt disclosure and correction of the violations. Earlier this year, the U.S. EPA updated its Frequently Asked Questions (FAQs) for its Audit Policy Program to reinforce the agency’s continued encouragement of companies to take advantage of the policy. While these policies are beneficial to companies that perform voluntary internal audits, it is important to recognize that the policies are not shields from enforcement, and on the federal level is a policy—not a law. If a company wishes to take advantage of an applicable state or federal audit immunity policy, legal counsel should be contacted to advise and assist in the disclosure process.

Best Practices for Performing an Internal Environmental Audit:

• Audit should be performed by a third-party environmental professional, either a consultant or legal counsel well-versed in environmental compliance matters.
• Consult legal counsel before beginning the audit process so that a strategy can be developed to address any compliance issues that are discovered, including disclosing pursuant to a state or federal audit immunity policies, and ensuring necessary precautions are implemented to protect the audit findings from discoverability, if desired.
• Determine the scope of the audit in advance and make sure the auditor understands facility operations.
• Use the audit as a learning opportunity. 
• Be prepared to expeditiously address compliance gaps that are discovered. If your company is not able to implement corrective action in a timely manner, it may be best to delay performing the environmental audit until you are ready to tackle any compliance issues that may arise.

If you think your company could benefit from an internal environmental compliance audit or you have specific questions regarding performance of an environmental audit or the applicable self-disclosure policies, contact environmental attorney Meagan Moore.