Environmental Audits

1. Environmental Audits • New Jersey Hospital Association - May 2, 2005 • Patrick T. Mottola, Esq. • This presentation and materials do not constitute and are not legal advice Norris, McLaughlin & Marcus, P.A.

2. Self-Disclosure of Violations • Environmental Protection Agency (“EPA”) Audit Policy • New Jersey Department of Environmental Protection (“NJDEP”) Policy Norris, McLaughlin & Marcus, P.A.

3. United States Constitution – Bill of Rights • Amendment V (1791) • “No person … shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law.” • Generally recognized as a right against self-incrimination • Less latitude in the administrative, rather than criminal context Norris, McLaughlin & Marcus, P.A.

4. To Audit, or Not to Audit? That is the Question • Self-audit without disclosure and await EPA inspection • Benefit: no disclosure • Risk: violations found later during an EPA inspection (especially documentation cases) • EPA’s Audit Program does provide incentives to disclose Norris, McLaughlin & Marcus, P.A.

5. EPA – Key Topics • Audit Policy • Audit Agreements Norris, McLaughlin & Marcus, P.A.

6. EPA Audit Policy • Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations (“Audit Policy”) • Federal Register, April 11, 2000 (Fed. Reg. Vol. 65, No. 70) • Updated EPA’s 1995 Policy Norris, McLaughlin & Marcus, P.A.

7. Incentives for Self-Reporting Under the Audit Policy • Elimination of Gravity-Based Penalties when all 9 conditions of the Audit Policy are met • Reduction of Gravity-Based penalties by 75% when all but the “systematic discovery” component is met • No recommendation for criminal prosecution • The audit will not trigger enforcement investigations Norris, McLaughlin & Marcus, P.A.

8. EPA Civil Penalty Assessments • Economic Benefit • The economic advantage gained by the violators past competitive advantage through non-compliance with environmental laws • Gravity-Based Component • The punitive portion of a penalty • Penalty above the economic benefit • Based on the behavior of the violator Norris, McLaughlin & Marcus, P.A.

9. Audit Policy – Conditions for Penalty Mitigation (Nine Total) • (1) Systematic discovery of a violation • Environmental audit • Environmental compliance management system • (2) Voluntary discovery • Not those discovered through a regularly-required monitoring program (e.g., NJPDES Permit, Air Permit) Norris, McLaughlin & Marcus, P.A.

10. Audit Policy – Conditions for Penalty Mitigation (Nine Total) • (3) Prompt disclosure • In writing to EPA with 21 Days of DISCOVERY (but see exception with Audit Agreement) • When an officer, director, employee or agent of the facility has an objectively reasonable basis for belief a violation occurred • (4) Independent discovery and disclosure • Before EPA would have identified the violation through its own investigation or report by a third party Norris, McLaughlin & Marcus, P.A.

11. Audit Policy – Conditions for Penalty Mitigation (Nine Total) • (5) Correction within 60 days of discovery • (6) Take steps to prevent recurrence of the violation • (7) Repeat violations not eligible • If occurred within the past 3 years • If part of a pattern of violations within the past 5 years at other facilities Norris, McLaughlin & Marcus, P.A.

12. Audit Policy – Conditions for Penalty Mitigation (Nine Total) • (8) Ineligible Violations • Result in serious actual harm • Present an imminent and substantial endangerment to human health or the environment • Violations of an administrative or judicial order or consent decree • (9) Cooperation Norris, McLaughlin & Marcus, P.A.

13. Audit Agreements • A mechanism for complying with the Audit Policy • Key features: • allows entity to set a schedule with EPA • allows for disclosure of violations beyond the 21-day requirement Norris, McLaughlin & Marcus, P.A.

14. Benefits to an Audit Agreement • Provides an opportunity to evaluate institutional environmental practices and SOPs outside the context of an enforcement action • Provides comfort that disclosure over a mutually-agreeable schedule will meet EPA’s requirements for timely disclosure Norris, McLaughlin & Marcus, P.A.

15. Effect on State Law • EPA developed the Audit Policy with consultation from the states • EPA will share information from an audit with a state • States are free to develop their own audit programs so long as they maintain the minimum requirements set forth by the federal government. Norris, McLaughlin & Marcus, P.A.

16. Audit Agreements for Hospitals and Universities • As of last year, EPA had 14 agreements with colleges and universities • EPA had at least 23 agreements with hospitals Norris, McLaughlin & Marcus, P.A.

17. Audit Policy Case Results • 130 Audit Policy disclosures • About $3.4 million in penalties waived • Time from disclosure to resolution – 6 to 18 months Norris, McLaughlin & Marcus, P.A.

18. Audit Policy Case Results • EPA issues a Notice of Determination (EPA’s resolution method) • 75% to 100% reduction • Many facilities are assessed $0.00 in penalties (100% reduction) • Penalties, after a 75% reduction, range from $6,800 to $27,000 Norris, McLaughlin & Marcus, P.A.

19. Types of Audit Agreements • Letter – simple, one page • Formal – detailed, many pages Norris, McLaughlin & Marcus, P.A.

20. Formal Audit Agreement • 8 Sections • Appendices • EPA will negotiate the Agreement to some degree, but the Agency is moving away from extremely tailored language Norris, McLaughlin & Marcus, P.A.

21. Audit Agreement – Section I • Introduction • Identifies parties • Recognizes the Audit Policy as the regulatory program governing the Agreement Norris, McLaughlin & Marcus, P.A.

22. Audit Agreement – Section II • Scope of the Audit • Air Programs • Water Programs • Pesticide Programs • Solid and Hazardous Waste • Hazardous Substances and Chemicals, Emergency Response, Emergency Planning and Community Right-to-Know Programs • Toxic Substances Norris, McLaughlin & Marcus, P.A.

23. Audit Agreement – Section III • Disclosure • Written disclosure reports in accordance with a schedule (Section IV) • EPA waives the 21-day disclosure requirement of the Policy in favor of the schedule in the Audit Agreement • Provides a 60-day period in which to correct violations discovered • Does NOT cover pre-Agreement activities Norris, McLaughlin & Marcus, P.A.

24. Audit Agreement – Section IV • Schedule • Notify EPA of the consultant within 14 days of the Audit Agreement • Commence the audit within 30 days • Submit Audit Reports within X days (this can be negotiated, 90 or 120 days is typical) Norris, McLaughlin & Marcus, P.A.

25. Audit Agreement – Section V • Corrective Action • Correct violations within 60 days of discovery • If correction cannot be achieved within 60 days, EPA may grant an extension • Requires expeditious correction for violations that “may present an imminent and substantial endangerment to human health or the environment” Norris, McLaughlin & Marcus, P.A.

26. Audit Agreement – Section VI • Civil Penalties for Disclosed Violations • No gravity-based penalties pursuant to the Policy • When assessing penalties for economic benefit from past non-compliance, EPA will consider the LEAST expensive means for coming into compliance • During the Audit period, EPA will not recommend civil enforcement to other agencies • EPA reserves the right to disclose and discuss a case with other regulatory agencies Norris, McLaughlin & Marcus, P.A.

27. Audit Agreement – Section VII • Regional Inspections - Compliance inspections will be assigned a low priority until after completion of the Audit, except: • Areas outside the scope of the audit; • When EPA receives a citizen complaint • If EPA has reason to believe there is a threat of danger to public health or the environment Norris, McLaughlin & Marcus, P.A.

28. Audit Agreement – Section VIII • Miscellaneous Provisions • Hospital identifies a “responsible official” who must certify that each disclosure report is true, accurate and complete • Hospital identifies a “contact person” who is typically the hospital’s attorney • EPA identifies a contact person • Provides that the hospital may make confidentiality claims Norris, McLaughlin & Marcus, P.A.

29. Audit Agreement – Appendix A • Covered Campuses and Off-Site Facilities • Hospital building • Auxiliary laboratories and medical service offices • Off-site storage • Vehicle garages • Offices • Doctors’ offices Norris, McLaughlin & Marcus, P.A.

30. Audit Agreement – Appendix B • Scope of Audit Program • Documents to Review (3 years prior) • Facilities Operations and Maintenance • Fleet Maintenance • Hazardous Waste/Tanks/Wells • Laboratories • Patient Care • Pharmacy • Use and Disposal of Chemicals/Products of Concern • Photo processing • Morgue Norris, McLaughlin & Marcus, P.A.

31. Practical Issues • Client can discuss legal issues under the attorney-client privilege • Project Team: client, technical (consultant), and legal (attorney) • Client departments • Environmental compliance manager • Facilities manager • Laboratory manager Norris, McLaughlin & Marcus, P.A.

32. Post-Audit Considerations • Follow-up reports if required • EPA may ask for information on the COST associated with coming into compliance as a result of the audit • Implement an Environmental Management System (“EMS”) to ensure future compliance Norris, McLaughlin & Marcus, P.A.

33. EMS • Create a general policy that expresses the institution’s commitment to comply with environmental laws • Establish and maintain procedures to identify environmental compliance points • Develop a compliance plan, including assignment of responsible personnel and employee training • Implement mechanisms for detecting violations of law (self-audits) • Provide for appropriate management review Norris, McLaughlin & Marcus, P.A.