Audit Program Risk Management: The Role Of Privilege And The Need To Manage For Self-Disclosure Opportunities

Mining is likely to be targeted by The United States Environmental Protection Agency (“EPA”) as one of its key enforcement targets for fiscal year 2002-2003. Identifying the mining industry as an enforcement target, coupled with an increase in enforcement activity in recent years, places each mining operation at increased risk of receiving enforcement attention. A properly developed and implemented Environmental Management System (“EMS”) tailored for your operation is invaluable in reducing the risk of incurring liability for non-compliance. At the heart of an effective EMS is an audit program that checks the company’s compliance with environmental requirements. In addition, audit privilege (in select states), voluntary self-disclosure, and the attorney-client privilege serve as very effective tools for managing those liabilities that may arise during auditing a well-developed program. Of course, these latter tools are effective only if the auditing program is properly structured and properly managed. EPA and some states also provide varying degrees of immunity for environmental violations that are voluntarily disclosed in writing by the company. However, self-disclosure laws and policies typically prescribe stringent requirements for parties seeking to take advantage of them. For example: U.S. EPA has recently extended the time period in which to provide full written self-disclosure to 21 days. However, U.S. EPA’s revised Self-Disclosure guidance also addresses when a company obtains knowledge of a violation for purposes of triggering the 21-day clock and specifically extends the knowledge requirement to include the company’s agents and consultants. This expansion increases the difficulty companies may have in clearly defining and managing when they obtained knowledge. This difficulty increases the importance of managing factual development and the strategic use of other