EPA Internal Auditing Policies: EPA Internal Auditing Policies: Guarding Against Violations & PenaltiesGuarding Against Violations & Penalties

David Quigley, Esq., Akin Gump Strauss Hauer & Feld, LLPDavid Quigley, Esq., Akin Gump Strauss Hauer & Feld, LLPDaniel Spandau, Senior Consultant, DJS Consulting Inc.Daniel Spandau, Senior Consultant, DJS Consulting Inc.

April 20, 2010April 20, 2010

David QuigleyDavid H. Quigley is a partner in the law firm Akin Gump Strauss Hauer & Feld. David’s practice covers an array of environmental matters, including transactional, enforcement litigation, regulatory compliance, lobbying and legislative development.

David’s transactional experience itself covers a broad spectrum. He has managed environmental due diligence in connection with acquisitions totaling over $1 billion in assets. He drafts the environmental representations, warranties and indemnities provisions in complex mergers and acquisitions and has negotiated the scope of those provisions. David’s regulatory compliance practice focuses on issues arising under the solid and hazardous waste regulations. More specifically, he counsels major gasoline distribution companies with respect to the requirements governing releases from under- and above-ground storage tanks, as well as providing day-to-day compliance assistance. In addition, Mr. Quigley counsels private and public entities with respect to cost recovery actions under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).Mr. Quigley advises clients on policy issues associated with the Clean Air Act's emission regulations and ozone depletion provisions, global climate change, and related greenhouse gas issues. He represents clients regarding these issues before members of Congress, the Environmental Protection Agency, and the Department of Energy.

Mr. Quigley received his B.S. with distinction in natural resources from Cornell University in 1995 and his J.D. in 1998 from Harvard Law School, where he served as a line editor of the Harvard Environmental Law Review. He is a member of the District of Columbia, New York and New Jersey bars.Mr. Quigley presents on compliance issues typically three to four times per year. He recently authored “From Red to Black by Way of Green: The Use of Risk Transfer Strategies to Turn Environmental Liability into Opportunity,” Inside the Minds, Environmental Deal Law Strategies, Aspatore Books.

Daniel SpandauDan Spandau is President and Senior Consulting Partner with DJS Consulting, Inc. He has been working in the environmental field for over 30 years and has worked specifically with Petroleum Retail Marketers since the late 80’s. His work has been focused in the storage of petroleum products, regulatory representation, evaluation of insurance risk transfer instruments, environmental remediation, audits, training, and the design and implementation of management systems to help monitor regulatory compliance practices.

Dan has a degree in Chemistry and an MBA with a focus in Information Management. He spent 10 years working with the EPA and the Department of Energy developing instruments to monitor Environmental Pollutants. In 1988, Dan started a commercial environmental laboratory for a Pump and Tank contractor in the Northeast. As an executive member of the staff, he helped expand the business into a national firm that offered Engineering, Permitting, Construction, Maintenance, and Environmental services to Petroleum Retail Marketers and Distributors. Dan has been an independent consultant since 2000.Dan’s focus over the last 5 years has been assisting Petroleum Marketers and Distributors, Environmental Law Firms and Real Estate Investment Firms deal with regulatory changes by helping them evaluate, design and implement programs to streamline regulatory compliance.

Environmental Compliance as Risk Avoidance

New PropertiesDue Diligence

Phase I and II AssessmentsAddresses Environmental Conditions

New or Existing PropertiesEnvironmental Audits

EPA’s Approach to New OwnersAddresses Environmental Compliance

Environmental Audits

“Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violation” (60 Fed. Reg. 66,706).

Originally published on December 22, 1995.

Incentives for detection, prompt disclosure, and expeditious correction of violations of Federal environmental requirements.

Remove or reduce gravity-based element of civil penalties.

No recommendation for criminal prosecution.

Self-Disclosure Policy

What do the incentives mean?

EPA civil penalties typically have two components.

Gravity of violation.Economic benefit from violation.

Extent of reduction based upon how many of policies “conditions” met.

100 % reduction if meet all conditions.75% reduction if meet all but first condition.

Gravity Matrix (RCRA)

Self-Disclosure Policy

What are the conditions?Systematic audit or management system.Voluntary discovery.Prompt disclosure.Independent discovery and disclosure. Expeditious correction and remediation.Prevent recurrence.Not a repeat violation.No imminent / substantial endangerment.Cooperation with regulator.

Self-Disclosure Policy

Who do you disclose to? Who has approved programs (EPA)?

36 statesDistrict of ColumbiaCommonwealth of Puerto Rico

What if you are somewhere else? NYNJEtc.

Self-Disclosure Policy History

2000 revisions (following 2-year evaluation)

Lengthened period for “prompt disclosure.”Clarified rules with respect to newly-acquired facilities.

Eased repeat violation prohibition.Set rules for disclosing violations discovered during acquisition.

2007 FAQ guidanceFY 2011: increase number of facilities conducting audits.FY 2008: eliminate 400,000 pounds of pollutants through audits.Focus on new owners, audit agreements.

Self-Disclosure Policy

Approach to new owners “encourage owners of newly acquired facilities to undertake a comprehensive examination of and improvements to a facility’s environmental compliance.”Relaxes Audit Policy requirementsOffers additional flexibility

Audits by agreementExtends reporting deadlines

Maintaining Compliance

Program to address Federal, State and Local regulatory requirementsProgram that can be easily applied to newly acquired propertiesStandardize program throughout companyPaperless, centralized compliance document management systemInformation system to allow management to have real-time compliance snapshotInformation flow and reporting that is proactive

Proactive Compliance Program

Plan and Identify

Process Management

Development Solution

Small Scale Testing

Trend Analysis

Refine Solution

Management Training

Operating Procedures

Full Scale Deployment

Management Reports

Operator Training

Subcontractor Training

Refresher Training

Redundant Processes

Information Systems

Document Management

Auto-Notification

Near Real-time reporting

Identify Additional Opportunities

Step 1Create

Step 2Implement

Step 3Refine and Improve

Responsibility and Accountability

Identify who is responsible and accountable for completing a task (liable to be called on to answer / has the ultimate ownership)Every program needs checks and balancesQuality Assurance and Quality ControlSet of procedures to followClear set of standards

LeakDetection

RiskManagement

Maintenance

InformationSystems

ProcessesProcedures

Training

Compliance

Process Steps

Data collected to determine 1st stepsKey areas of concern are identified, trackedService provider information and services are reviewed and modified to be more informativeCompany positions are reviewed to incorporate a compliance scope

Programs are designed to incorporate manual systems used to track compliance

Core programming is built around audits

Small scale field test

Data collection are run for 4-6 months and reports are designed to extract and analyze data

Process Steps

User input modules allow audit information to be uploaded from remote / home officesEach item assigned a responsible party. Emails auto-notify on non-complianceReports document open items by responsible party, aging, region, territory, etc.

Service providers work tasks are modified as requiredFeedback systems are shortened Management reports are designed

All in Drilldown designTraining programs for Management, Supervisors and Service Providers

Process In Practice

Process in Practice• Perform field audit (preprinted form)

• List of previous open items and pre-printed historical information

• Verifies data• Web entry

• Data System verification• Identifies responsible party• Auto-notification• Electronic receipt received by auditor

• Data System follow-up• Management reports updated• Real-time compliance analysis• Tracking reports and trend reports by Company, Region, Location, personnel or sub

Can We Be 100% Compliant?Exposure to many variables not controllable

Mechanical failuresElectronic failures

Exposure to many variables are controllablePaperwork filingsRequired Daily, Weekly and Monthly inspectionsDelivery issuesProper maintenance, Subcontractor performanceRegulatory Violations

How to eliminate 85% of violations

15 to 30 minutes per dayOperator inspection

fill out required forms and logsRepair, replace or request maintenance

2 hours per monthCompany compliance audit

Review of operator responsible itemsMake sure documents are available

Monthly reviewCompany management

Trends, performance, regulatory changesAnnual wrap-up

Where should we spend our money?

Technology is primaryProductivity enhancements

Evaluate Locations Cost for upgrade or divestment

Training – Management and OperatorDocument ManagementUnderstanding of Regulatory Environment

Compliance Investment Returns

Design systems and programs that have:Owner and management support Long term – scalable Flexible – incorporate changeAbility maximizes current technologyAbility to collect, organize and analyze dataAbility to target current expenses that can be internalized or eliminatedExcellent information on current status, trends and target/prioritize expense initiativesConvert Man-Year efforts into technology based solutionsDocument Management System