Ken Gold, Honigman, Compliance Auditing in a Changing World, Midwest Environmental Compliance Conference, Chicago, October 29-30, 2015

1. Compliance Auditing in a
Changing World
Legal Considerations for Audit Program
Managers

2. Legal Considerations
 Unless protected, audit
documents may be obtained by
the government or other third
parties
Subpoena or search warrant
Litigation discovery
Court order
Statutory duty to disclose

3. Legal Considerations
 No bulletproof way to protect
confidentiality
 No protection is absolute
 Before commencing audit process, accept the
possibility that records may be obtained (or
you must disclose them) and used against
you
 But you can take practical steps to maximize
chances of maintaining confidentiality

4. Legal Considerations
 How to protect audit documents
Attorney-client privilege
Attorney work product doctrine
Audit privilege laws
Common law self-evaluation
privilege

5. Legal Considerations
 Attorney-client privilege
 Confidential communication
 To or from an attorney, acting as an
attorney
 For purpose of obtaining legal advice
 May be defeated by showing that
attorney role not really necessary for
legal advice
 Doesn’t protect information – just the
communication

6. Legal Considerations
 Attorney work product doctrine
 Material prepared by attorney or
attorney’s agent
 In anticipation of litigation
 May be defeated
 Litigation not anticipated when the
document was prepared
 Substantial need and undue hardship
(ordinary WP)
 Extraordinary need (opinion WP)

7. Legal Considerations
 Audit privilege laws
 Many states have some form of audit
privilege law or policy
 Most certain protection available
 Must follow procedures in the law or
policy
 No federal counterpart (but see EPA
audit policy)

8. Legal Considerations
 All six EPA Region 5 states have laws
 Illinois – 415 ILCS 5/42(i) – no privilege;
penalty reduction for voluntary disclosure
 Indiana – IN Code 13-28-4-1 et seq.
 Michigan – MCL 324.14801 et seq.
 Minnesota - Minn. Stat. Ann. 114C.20 et
seq.
 Ohio – Ohio Rev. Code Ann. 3745.70 et seq.
 Wisconsin (“Green Tier” program
participants) – dnr.wi.gov/topic/greentier

9. Legal Considerations
 Common law self-evaluation privileges
 Judge-made rule to encourage critical
self-evaluations
 Limited in scope to post-incident
reviews
 Not widely recognized

10. Legal Considerations
 Practice pointers
 Don’t accidentally waive confidentiality
and lose the privilege
 Limit circulation to “need to know” basis
 Properly label all confidential documents
and file separately
 Instruct personnel on confidential nature
of documents in the event of regulator
site visit
 Take care not to reflect information in
other, non-confidential documents –
e.g., board minutes

11. Legal Considerations
 Practice pointers (cont’d)
 Determine if state audit privilege statute or policy applies
and consider following it
 Keep in mind that you may be required to disclose
regardless of all efforts to maintain confidentiality
 Permit conditions that require disclosure
 Statutory or regulatory duties to report (e.g., RQ spills)
 Consent orders/agreements with government or others
 Duty to disclose to others outside the confidential
relationship – accountants, auditors, lenders
 Risks of disclosure outside your control
 Government or third party’s own investigation
 Disgruntled employee or other whistleblower

12. Legal Considerations
 U.S. EPA Audit Policy
 Issued 1995; revised 2000 (65 Fed. Reg. 19618, April
11, 2000)
 Voluntary policy to encourage self-disclosure and prompt
correction of problems
 No privilege
 In exchange for following the policy, possibility of no or
lower civil penalties

13. Legal Considerations
 Nine key elements:
 Systematic discovery (e.g., EMS environmental audit)
 Voluntary discovery (e.g., not through required testing)
 Prompt disclosure (21 days maximum)
 Discovery and disclosure independent of government or third-
party
 Correction and remediation within 60 days
 Prevention of recurrence
 Not a repeat violation
 No serious harm or danger; no violation of judicial or
administrative order or consent agreement
 Cooperation with government

14. Legal Considerations
 Policy offers 100% mitigation of gravity-based penalties
 No mitigation for penalty for economic gain
 If meet all but first condition (systematic discovery), still
eligible for 75% gravity-based penalty reduction
 Practical considerations of EPA policy
 Often triggers governmental inquiry into whether all policy
applicability conditions were met (penalty by investigation)
 Unpredictable outcome of review of 9 factors – and
disclosure under policy is reviewed by special EPA team
 Applies to EPA only – not to other U.S. agencies; not to
state or local regulators, which may have independent
enforcement authority
 Policy is only a guidance; creates no legal rights and is not
enforceable against EPA – therefore, no guarantees

15. Legal Considerations
 EPA “Interim Approach to Applying the Audit Policy to New
Owners” – effective August 1, 2008
 Penalty mitigation beyond that offered by the Audit Policy
 More kinds of violations eligible for Audit Policy
consideration
 Further information about EPA’s audit policy:
http://www2.epa.gov/compliance/epas-audit-policy