How EPA’s Audit Policy Can Benefit Compliance Focused Businesses

The US Environmental Protection Agency’s (EPA) Audit Policy remains a powerful compliance tool available to regulated entities. General contours of the policy are summarized here. First introduced in the mid‑1990s, the Policy offers substantial enforcement relief for companies that voluntarily discover, disclose, and correct environmental violations. Understanding the Policy’s mechanics and benefits is essential for strategic environmental risk management, especially under the current Administration. 

The recently announced “Compliance First” framework emphasizes the continued importance of the Audit Policy. (See here.) EPA’s “Compliance First” framework emphasizes swift compliance under the “best reading” of law, increased coordination with states, and narrower injunctive relief. These developments further align enforcement outcomes with transparent self-disclosure and timely correction. While “Compliance First” does not signal an absolute retreat from enforcement, it reinforces EPA’s longstanding practice of prioritizing cooperative compliance efforts ahead of punitive measures, which is precisely the aim of the Policy and enhancing its strategic importance.

Though the Policy is most recently dated in 2000, guidance issued in 2021 by the Biden Administration illustrates continued EPA institutional support. The Biden Administration’s 2021 EPA’s Audit Policy Program: Frequently Asked Questions consolidate and clarify prior interpretive documents from 1997, 2007, and 2015 as part of EPA’s renewed emphasis on self‑disclosed violations. These FAQs replace earlier materials and reflect the agency’s experience with thousands of disclosures across decades, emphasizing self-disclosure as a key enforcement mechanism. 

Penalty Mitigation and Voluntary Disclosure

The Policy’s most immediate benefit is the significant mitigation of civil penalties it offers, a compelling factor where statutory maximums can reach tens of thousands of dollars per violation per day. The Policy states that EPA will eliminate 100% of gravity‑based penalties if all nine of its conditions are satisfied. Even when systematic auditing (one of the conditions) is absent, a 75% reduction is available for entities meeting all other requirements. These incentives can dramatically reduce enforcement exposure, with some prior voluntary disclosures under the Policy mitigating penalties that had the potential to reach millions of dollars. 

Given that penalty mitigation is contingent upon meeting strict timelines — often requiring disclosure within 21 days and correction within 60 days — legal oversight and implementation of a consistent and thorough auditing system is essential to coordinate rapid response and document compliance with Policy criteria. 

Moreover, while EPA retains discretion to recapture economic benefit derived from any noncompliance to prevent competitive unfairness, it may waive such amounts when the benefit is insignificant — an important nuance for counsel assessing cost exposure. 

Finally, EPA indicates in the Policy that it will not ordinarily request or seek routine audit documents — so long as violations are voluntarily disclosed — which reduces a potential chilling effect associated with internal auditing. 

Criminal Liability Protection and Enforcement Discretion

A further critical benefit is the Policy’s guidance regarding criminal enforcement. A company that voluntarily discloses violations, meets the Policy conditions, and demonstrates good‑faith efforts to prevent recurrence may receive an EPA recommendation for no criminal prosecution. 

This prosecutorial relief may be particularly significant in industries where operational complexity or changes in processes or scope of operations increases risk of unintentional violations. 

The ‘New Owner’ Audit Policy

Acquiring companies face heightened environmental risk, particularly during post‑closing integration where legacy noncompliance can surface. EPA’s “New Owner” Audit Policy offers tailored incentives that extend mitigation opportunities to acquirers addressing pre‑existing violations at newly purchased facilities. This approach provides penalty relief and greater flexibility regarding disclosure timing, aligning environmental due diligence with transactional risk allocation. In the context of completed mergers or acquisitions, strategically invoking the “New Owner” Audit Policy can reduce exposure, facilitate integration, and enhance negotiating leverage regarding indemnities or escrows. 

Practical Compliance Advantages

Why should businesses conduct audits when federal authorities have expressly indicated a preference for compliance assistance over use of violation notices and enforcement as a means to compel compliance, especially in an environment when less enforcement actions are being filed? There are two main reasons. First, because prioritizing prompt compliance with the law is part of overall good governance, and second, because the Policy can often be used in combination with similar state disclosure programs to mitigate the risk of state enforcement as well. 

EPA’s interpretive materials related to the Policy emphasize practical implementation considerations, including the scope of voluntary disclosure, treatment of confidential business information, and documentation expectations. In contrast to disclosures made following compliance agreements, the 2021 FAQs reinforce that disclosures required by statute do not automatically disqualify an entity from the voluntary discovery condition.

From a litigation standpoint, voluntary disclosure can neutralize enforcement‑driven disputes by establishing a cooperative posture and demonstrating good‑faith compliance. When read in conjunction with the Policy, the “Compliance First” memorandum illustrates EPA’s renewed emphasis on outreach and education and reflects a broader shift toward cooperative federalism — helping regulated entities avoid enforcement actions through proactive reporting rather than purely adversarial or enforcement-based approaches.

Strategic Risk Management as Organizational Culture

Successful use of disclosures with the Policy requires disciplined execution: accurate scoping of audits, rapid evaluation of potential violations, and clear documentation. However, regular environmental auditing also presents risks, including creation of discoverable materials and strict regulatory timelines. Legal oversight is essential to preserve privilege, structure findings, and coordinate disclosure strategies, particularly where federal and state regimes overlap. When used effectively, the Policy supports robust compliance culture. In an enforcement landscape ostensibly shaped by transparency, cooperation, and accountability, the Policy remains a vital mechanism for aligning environmental performance with regulatory expectations.

Members of the firm’s Environmental and Energy & Cleantech groups regularly monitor federal and state administrative activity that affect the regulated community.