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Environmental

• COMPLY WITH DEADLINES. Review prompt reporting and under an audit agreement. Notably, an audit agreement with
corrective action deadlines to ensure you comply with appli- EPA does not alter the requirement to correct any violations
cable requirements. For instance, under EPA’s Audit Policy, within 60 days of discovery (unless extended by EPA).
violations must be disclosed within 21 days of discovery and • TAKE ADVANTAGE OF THE NEW OWNER POLICY. If you
any violations identified must be corrected within 60 days of discover significant environmental compliance liabilities
discovery (unless you request an extension), even if the audit as part of the due diligence process that become a sticking
is not yet complete. Failure to strictly abide by these require- point in a transaction, you can use the EPA New Owner
ments can mean you forego penalty mitigation. Policy as a tool to potentially mitigate those environmental
• UNDERSTAND STATE-SPECIFIC AUDIT REQUIREMENTS. Many liabilities to move the deal forward.
state audit laws and policies have distinct requirements. For • HIRE AN EXPERIENCED ENVIRONMENTAL CONSULTANT.
instance, some state programs require that you notify the We recommend that you hire a consultant with exten-
state agency prior to beginning an audit or enter into an audit sive experience conducting environmental self-audits who
agreement to benefit from the policy or law, or require that is knowledgeable about your industry. While you may pay
reports be labeled with specific words in order to be privi- more initially for top environmental consulting firms, you
leged. You should carefully review the requirements of all will ultimately save money in legal fees and other costs as
relevant audit policies and laws before beginning the audit. experienced firms know what to look for, have experience
• MANAGE INTERNAL RESOURCES. Because identifying and preparing audit reports and recommending efficient steps to
correcting violations during an environmental audit can correct violations, and are less likely to miss violations.
be a significant undertaking, it is important to make avail- • RETAIN EXPERIENCED ENVIRONMENTAL COUNSEL. You
able the staff and resources necessary to undertake the audit can maintain confidentiality of communications with the
and address any violations prior to commencing an audit. auditor about the self-audit under the attorney-client priv-
Depending on its scope, an environmental audit can take ilege if an attorney engages the environmental consultant
several months to complete and require significant internal to undertake the audit for the purpose of providing your
resources to support. Accordingly, you should consider company with legal advice. An attorney also can assist with
scheduling the audit to minimize interference with your managing the audit process in compliance with relevant
employees’ day-to-day duties. audit policies and laws, provide advice as to the existence of
• SCOPING AND TIMING. An audit can cover all types of violations, and draft any communications with regulators
potential environmental requirements applicable to all of a regarding violations discovered through this process.
company’s facilities or it can be limited to certain facilities or
particular environmental requirements. In addition, audits Conclusion
can be staggered across multiple facilities, and can be sched- Environmental audit laws and policies are a valuable tool for
uled to avoid the busy winter season. There are advantages companies that are subject to federal and state environmental
and disadvantages to each of these approaches. For instance, laws and regulations. An environmental self-audit can assist
a comprehensive audit at all facilities ensures that violations in ensuring company-wide compliance with environmen-
are identified quickly and reduces the risk of environmen- tal laws and regulations, mitigate environmental liabilities in
tal incidents or discovery via government inspections. Such the context of acquisitions, and reduce the risk of substantial
a comprehensive audit, however, can be costly and may fines and penalties.
require significant internal and external resources. Narrower, 1 EPA, “Incentives for Self-Policing: Discovery, Disclosure, Correction
media-specific and facility-specific audits can focus resources and Prevention of Violations,” available at https://www.epa.gov/
on the highest compliance priorities, but may be less efficient compliance/epas-audit-policy
and could prompt agency scrutiny of non-audited facilities. 2 EPA, “Interim Approach to Applying the Audit Policy to
• CONSIDER AN EPA AUDIT AGREEMENT. You can enter into an New Owners,” available at https://www.epa.gov/compliance/
epas-interim-approach-applying-audit-policy-new-owners
audit agreement with EPA in advance of undertaking the
3 See EPA, “Transmittal of the 2017 Annual Civil
audit, which provides certain advantages. For instance, you
Monetary Penalty Inflation Adjustment Rule,” avail-
mitigate the risk that a governmental inspection will occur
able at https://www.epa.gov/enforcement/
during the audit and eliminate your claim of voluntary dis- transmittal-2017-annual-civil-monetary-penalty-inflation-adjustment-rule
covery, and you can report violations at one time at the end 4 See C.R.S. § 13-25-126.5 (audit privilege), § 13-90-107(1)(i) (testimo-
of the audit instead of within 21 days of discovering each nial privilege), § 25-1-114.5 (penalty immunity).
separate violation. In addition, companies that qualify as 5 See C.R.S. § 13-25-126.5 (audit privilege), § 13-90-107(1)(i) (testimo-
new owners can extend their nine-month new owner status nial privilege), § 25-1-114.5 (penalty immunity).

16 | NSAA JOURNAL | EARLY WINTER 2017