Texas Audit Act
Did you know that there is a way for an individual/corporation to identify areas of non-compliance within their own facility and/or specific facility operations and receive immunity from administrative and civil penalties that would otherwise be associated with non-compliance? The Texas Environmental, Health and Safety Audit Privilege Act (Audit Act), first established by House Bill 2473 in 1995, provides incentives for individuals/corporations (“persons”) to conduct voluntary self-audits of their facilities and/or specific operations and implement prompt corrective action where violations are identified. The incentives provided by the Audit Act include immunity from administrative and civil penalties as well as limited evidentiary privilege for certain information gathered during the voluntary self-audit. However, in order to be eligible for the immunity provisions, the individual/corporation must follow the process described in the Audit Act.
How the Texas Audit Act Works
To be eligible for immunity and/or limited evidentiary privilege, auditing persons must submit a Notice of Audit (NOA) to the Texas Commission on Environmental Quality (TCEQ) prior to beginning the self-audit and must submit a Disclosure of Violation (DOV) to the agency for any violations for which immunity is desired. In the event an audit is anticipated to take longer than six (6) months from the date of the NOA submission, persons must also submit a Request for Extension to the agency prior to the expiration of the six (6) month period; otherwise, the immunity provision of the Audit Act may be forfeited.
Submitting the NOA
To be eligible for the immunity provision of the Audit Act, the auditing persons are required to notify the agency of the plan to commence an environmental audit via the submission of an NOA. NOAs must be submitted in writing to the TCEQ via mail. The NOA must include such information as the general scope of the environmental audit as well as the specific date and time the audit will commence. It is important the general scope of the environmental audit is sufficiently detailed, as only violations discovered within the general scope defined in the NOA will be eligible for immunity. If, during a self-audit, violations are discovered in association with facilities and/or operations outside of the defined scope of the audit as defined in the NOA, the violations may not be eligible for the immunity provision of the Audit Act.
Note that if persons conducting a self-audit do not desire the immunity provision of the Audit Act, they are not required to submit an NOA to the agency.
Submitting the DOV
Promptly upon the discovery of a violation as a result of the self-audit, a DOV must be voluntarily submitted, in writing and via mail, to the TCEQ. The DOV must include, among other items, a description of the violation discovered, the date on which the violation was discovered, the duration of the violation and the status and schedule of correction action to be taken in response to the violation. It is critical to accurately report the duration of the violation as this will be used to determine the window for which immunity will be effective. The violation will only qualify for immunity if corrective action of the violation is taken within a reasonable time. Following completion of corrective actions, the persons should notify the TCEQ.
Submitting a Request for Extension
Per the Audit Act §4(e), the time frame for the self-audit period is defined as a “reasonable time,” not to exceed six (6) months. If a self-audit investigation is expected to take longer than a reasonable time, a written request for a time extension must be submitted to the TCEQ prior to the end of the six (6) month audit investigation period. The Request for Extension must contain sufficient detail for the TCEQ to determine if there are reasonable grounds to grant the extension. A Request for Extension must be approved in writing by the TCEQ prior to the end of the audit investigation period in order for the immunity provision of the Audit Act to be claimed.
Special Cases: Environmental Self-Audits Conducted Pre-Acquisition by Outside Parties
If a person considering the acquisition of a facility/facilities initiates an environmental audit prior to the acquisition closing date, the person is not required to submit an NOA to the agency in order to be eligible for the immunity privileges of the Audit Act. Additionally, environmental audits conducted pre-acquisition are not subject to the reasonable time frame; however, if the audit is expected to extend beyond the closing date, the person must notify the agency that the audit is continuing in order to be eligible for immunity privileges. In the event violations are identified during the environmental audit, the person must submit a DOV to the agency within 45 days after the acquisition closing date.
Limits of the Immunity Provisions
The limited evidentiary privilege applies to the admissibility and discovery of audit reports in civil and administrative privileges and does not apply to documents, reports, etc. that are required to be developed by state or federal law, does not apply to information obtained outside of the audit process or outside of the scope of the environmental audit as defined by the NOA and does not apply to criminal proceedings. The immunity obtained for violations identified under a self-audit and voluntarily submittal to the TCEQ only applies to administrative and civil penalties and does not prevent the TCEQ from otherwise enforcing compliance through such action as injunctive relief.
The Audit Act provides the opportunity for individuals/corporations in Texas to identify and correct violations and areas of non-compliance within their own facility/operations without facing administrative and civil penalties for the violation and to obtain limited evidentiary privilege for discovery of these items in administrative and civil proceedings. The Audit Act, if used pre-acquisition of a facility/facilities, can inform potential buyers, investors and stakeholders of areas of non-compliance and reduce risks associated with acquisitions.