Federal Legislation Advances to Protect Audit Confidentiality

Published October 1, 1997

During Congress’ summer recess, the staff of Senator Kay Bailey Hutchinson (R-Texas) was hard at work soliciting support for her Environmental Protection Partnership Act (S.866), which would provide a federal framework for companies to voluntarily conduct environmental audits, especially in states without their own voluntary audit laws, and to bar EPA from interfering with state audit laws already on the books or under consideration. Introduced in June, Hutchinson’s proposal was put on hold during the recently completed budget battle, but it could become a center of controversy between the Clinton administration and the Congress in coming weeks.

Hutchinson says the bill does not preempt state audit laws. Instead, it would apply in federal actions and in actions brought under federal laws for which a state has been delegated primary enforcement authority. It also bars federal agencies from taking action that would have the effect of altering the scope or effectiveness of a state’s audit laws. S.866 also directs federal agencies to assist small businesses in conducting voluntary audits.

“My bill,” says the Senator, “provides incentives for companies to assess their own environmental compliance. Rather than playing a waiting game for EPA to find environmental violations, companies will find–and stop–violations. . . . I propose to engage every business voluntarily in working toward [a cleaner environment, pure water, and clear skies] by creating incentives for them to find and fix their own violations. This would free the EPA to target enforcement dollars on the ‘bad actors’–those who pollute.”

Hutchinson’s bill provides two incentives for companies to find and fix violations and report them to EPA. First, if a company voluntarily completed an environmental audit and promptly took steps to cure any violations, the audit compliance report could not be used against it in an administrative proceeding or court. Second, a company which also disclosed the violation to EPA could not be penalized. In addition, a person who performed an audit for a company could not be required to testify about the audit report without the companies’ consent.

The protections, however, would not apply if the company did not promptly take steps to remedy all violations; the company was already obligated by law to disclose the information; the information was obtained by a regulatory agency independent of the audit; the privilege was asserted to avoid an imminent or ongoing investigation; or the privilege was asserted fraudulently. They would also not apply where an injunction was sought to stop continuing public health or environmental effects.

Hutchinson has strong support from Senate Majority Leader Trent Lott (R-Mississippi) for her bill, as evidenced by his statements on the Senate floor on June 11. After explaining what an audit is and why audits vary widely in scope, Lott asserted that many companies do not perform voluntary self-audits “because the information in the audit documents can be obtained by government regulators, prosecutors, citizens’ groups, or private citizens and used to sue the company.” He went on to note that states are properly rewarding responsible, self-auditing companies because of the environmental benefits achieved through mandatory corrective action by those finding problems through the audit process.

But, Lott cautioned, EPA can, and is even eager to, overfile against companies that have met all requirements under state audit law, since there is now no law barring federal enforcement actions even for violations of regulatory programs delegated to states. EPA has even set up a task force to monitor approval of state programs and has threatened to delay or deny approval based on content of state audit privilege statutes. “Does this,” he pondered, “sound like an agency whose charter is to clean up the environment, or does this sound like a bureaucracy that focuses on punishment first?”

PF: For more information on environmental audit laws, see “Environmental Audits: State Carrots Versus Federal Sticks in Environmental Enforcement,” a Competitive Enterprise Institute report released in March 1997. The report is available in two parts through PolicyFax. Call 847/202-4888 and request document #2392409 (part 1, 13 pages) and #2392410 (part 2, 9 pages). For model environmental audit legislation, request #2392603, the Michigan Environmental Audit Privilege and Immunity Act (14 pages) and its companion legislative analysis, #2392604 (14 pages).