£
\ Office of Inspector General
Report of Review
Follow-up Review on
EPA's Mitigation of Penalties
E1GMG4-05-6009-4400107
EPA
3507
1994.15
September 15, 1994
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Inspector General Division
Conducting the Audit:
Region Covered:
Program Offices Involved:
Northern Audit Division
Region 5
Office of Enforcement and
Compliance Assurance,
Washington, D.C.
Region 5 Office of Regional
Counsel, Chicago, IL
Region 5 Air and Radiation
Division, Chicago, il_
Region 5 Water Division,
Chicago, IL
Region 5 Waste Management
Division, Chicago, IL
Region 5 Environmental
Sciences Division, Chicago, IL
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MAX
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C; 20460
' '".," .- SEP t 5 1994 ' ' . ; ,
\
1 ' ' OFFICE Of
MEMORANDUM '. < THE INSPECTOR GENERAL
SUBJECT: Follow-up Review . . -
Report No. E1GMG4-05-6009-4400107
Mitigation of Peiwtlties ' '
. FROM: . '.j--Michael Simmons
l^*^'Associate Assistant Inspector General for
. /( ' -. Internal and Performance Audits. - ,
v^ - , TO:, Steven .Herman .. ^ . - ,
.^ - i - ., Assistant, Administrator for . .
'; . Enforcement and Compliance Assurance
We have completed a follow-up review on the Office of. -
Inspector General's (OIG) 1989 audit report, Capping Report
on the Computation, Negotiation, Mitigation, and Assessment
of Penalties Under EPA Programs (Report No. E1G8E9-05-'0087-
9100485). During the follow-up review, we found that the.
Environmental Protection Agency (EPA) had successfully taken
. actions to address the findings arid recommendations in our
1989- report. Region 5 adequately documented penalties, andN .
reductions complied with penalty policies. "Assessed . ' ,
penalties' also recovered the economic benefit gained by .
noncompliance, when applicable'. .
We did identify minor issues relating to/.the Draining of
attorneys.and documenting of supplemental"environmental "
- projects (SEP). EPA needs to ensure that ^regions'are..
training attorneys involved in negotiations. ' EPA'also needs
to review whether the regions are documenting the
appropriateness of SEPs in accordance with policy.
PURPOSE ' '' . ..'_ -. '
The specific objectives of the.review were to determine
whether the corrective actions recommended in our 1989 .report
.' : were: ..' - . ' ' -
implemented in accordance with the Agency's actl'on plan
and milestone dates; and ' . .
effective in recovering'the economic benefits which. . -
violators received from noncompliance.
Rocycted/Recyctabla
Printed w«h Soy/Canola Ink on paper that
contain* at tettl 50% rccydwt f.b»f
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1
Mitigation of Penalties
SCOPE AND METHODOLOGY
,To accomplish our objectives,' we reviewed the Office of
Enforcement-'and Compliance Assurance's1 .(OECA) action plan,
dated December 22, 1989, and the efforts made to implement
>the plan. Recommendations, and actions agreed to, regarding
state penalty, assessment .activities were not included in this
review. - . ' - - '
We also: . , " .
' reviewed program office penalty policies to identify the
guidelines for calculation and mitigation of penalties;
interviewed OECA officials -regarding regional oversight;
reviewed OECA and program office regional review reports
for all regions to verify oversight of penalty issues;
,and
reviewed case files in Region 5's Pesticides and Toxic
Substances Branch (which included Emergency Planning and
Community -Right-To-Know Act (EPCRA) cases), Resource
Conservation and Recovery Act Enforcement Branch (RCRA),
'Water Compliance Branch (Water), and Air Enforcement
Branch (Air) to determine whether penalties were
adequately calculated, documented, and assessed.
This review-, like all special reviews, was a short-term
study of EPA activities and does not represent an audit in
accordance with the Government Auditing Standards (1988
Revision) issued by the .Comptroller General of the United
States. Alternatively, we conducted this review in
accordance with the provisions of OIG Manual Chapter 150,
Special Reports; We conducted our fieldwork from February 7,
1994 through-July 6, 1994. ' . .
We issued the draft report toxthe Assistant
Administrator for Enforcement and Compliance Assurance on
July 11,, 1994. -The Assistant .Administrator responded to our
report on August 17, 1994. We incorporated the .response into
this report where appropriate. The entire response is
included as Appendix 1. Office of Enforcement and Compliance
Assurance of ficials .stated that an exit conference^'was not
needed since they agreed with the report.
1 Formerly the Office of Enforcement.
- ' 2
Report No. E1GMG4-05-6009-4400107
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Mitigation of Penalties
; We did identify minor issues relating to the training of
attorneys and documenting of SEPs'. 'EPA needs to ensure that
regions are \
In response to our 1989 report, OECA tpok steps to:. (1)
-issue penalty guidance, (2) oversee regional activities, and
(3) monitor penalties assessed/and collected. .These, actions
promote ..consistency in'penalty calculation, documentation,.
vand'collection, and fair and consistent treatment of the .
'regulated community. Also, OECA's efforts reduced the risk'
of non-recovery ofassessed penalties and provided deterrence
against future noncompliance. We identified a minor issue
related to training attorneys involved in negotiations...
, '' " f '
Issuance of Penalty Guidance ...
In response." to, our 1989 draft report, the Assistant
Administrator for Enforcement and Compliance Assurance issued
a. memorandum, dated December 1, 1989, which emphasized the *
importance'-of adhering to policies and'documenting penalties.-
,According to the memorandum, documentation in case files
should easily reconstruct the Agency's process in arriving at
the final penalty. Issuance of this memorandum encouraged
consistency in calculating and documenting,penalties.
.' _ ''/", r -
.'The Assistant Administrator also issued a memorandum.
that established guidelines for, documenting' and justifying .
penalties in all enforcement actions. The .August 9, 1990 :
memorandum required that documentation should, at a -minimum,.
show: (1) calculations of the gravity and economic,benefit
components, (2)'the basis in the applicable penalty policy,
and (3) .any circumstances that justify adjustments.to the
bottom-line penalty (the lowest amount EPA is willing to
accept). OECA issued the guidelines to ensure compliance .
/with penalty policies' and documentation of penalty
calculations and:assessments for purposes of oversight
review; . " . - ..
Report No. E1GMG4-05-6009-4400107
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fj
Mitigation of Penalties
Oversight of Regional Activities _ _ '
EPA improved its oversight of regional penalty
activities. Our 1989 capping report recommended that EPA
institute a more aggressive oversight program/of regional
'activities. The report recommended that the programexpand
reviews of regional.penalty'programs to include adequacy of '
penalty calculations, reductions, negotiations, and .
documentation. During the follow-up review,.we found that'
the regional reviews performed by EPA addressed penalty and
documentation issues. In addition, OECA formed an
enforcement workgroup to review, the assessment and oversight
of administrative penalties.
We examined the most recent review reports for Air,
RCRA, Pesticides and Toxic Substances, and Water for each of
the ten regions. The reports included review of penalty and
documentation issues. The Pesticide and Toxic Substances and
Air reports indicated adequate documentation of penalties and
identified some minor issues, isolated to specific regions.
Also, the" Pesticide and Toxic - Substances reports indicated
that penalty amounts and reductions were'in accordance with
policies. The Water and RCRA reports identified
documentation weaknesses relating to penalty calculations and
supplemental projects.
. OECA identified "documentation of administrative
penalties as an Agency-level weakness in the fiscal 1992 and
1993 Federal Managers' Financial Integrity Act reports. As a
result, OECA formed an enforcement workgroup to look into
penalty calculation and documentation of administrative .
penalties. The workgroup focused on, among other things:
(i) penalty, documentation practices, (2) Headquarters' review
of region-lead actions, and (3) media-specific-penalty
training. In January 1994, the workgroup recommended that:
, program offices issue guidance regarding current
requirements for documentation'of administrative
penalties and guidelines for recovering economic
benefit,
OECA issue a directive for program offices to implement
an'administrative penalty review process to monitor
adherence to policies, and
OECA revise current .penalty memoranda and compile a
complete set of penalty policies. ; .
6 '
Report No. E1GMG4-05-60,09-4400107 ,
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''' '. ' . <_
7
Mitigation of Penalties
enforcement program. Deterrence of noncompliance is achieved
through: ;(1) the perceived likelihood of detecting a
violation, (2)' the speed of the enforcement response, and (3)
the likelihood and severity of the penalty. While,, penal ties
are.the critical third element in creating deterrence, they
.can also contribute to greater equity,among the regulated
community by recovering the.economic-benefit a -violator gains.
from'noncompliance over'those who comply. .' «'
In 1984,'EPA established a uniform penalty policy" for
all its regulatory programs. The policy required' regional,-.
enforcement .officials to assess penalties that are at least
as great as the amount by which a company would benefit by
not complying with'the law. ',Accdrdirig to this policy, the
final assessed penalty should include .this minimum penalty,
as well as a-gravity component based on-the seriousness .of .
the violation. < ' . . *
EPA established the following goals for penalty . }
assessment: (1) deterrence, (2) fair and equitable treatment
of the1 regulated community, arid (3) swift resolution.of
environmental problems. While basic guidelines were
developed,'each program office developed penalty policies
specific to the relevant statutory provisions and priorities
of that program. The. policies provide guidelines for
assessment of penalties under a specific program.^ - ,..
'Our 1989. OIG'capping, report'on penalty computation and
assessment found that the'Agency needed to take more
assertive actions' regarding .the '.(1) calculation, assessment,
and.documentation of, penalties; (2) collection of the
economic" benefit gained by noncompliance; and (3) ' "
accumulation of.penalty information. -.The report; found that,
because of problems with the computation and assessment of
penalties, the Agency was not obtaining maximum deterrence
' and fair and equitable treatment of the regulated community-.'
Also, by not accumulating penalty, information, the Agency
could not adequately judge the success of. the program nor .
identify the'areas needing improvement .in the computation and
assessment of penalties." " ' ~ ,'
RESULTS-IN-BRIEF . - " _ '
EPA.had successfully taken actions to address the -
findings and, recommendations in pur 1989 report. Region 5
adequately documented penalties, and reductions complied with
penalty policies. Assessed penalties also recovered the
economic benefit gained by noncompliance, when applicable.
Report No. E1GMO4-05-6009-4400107
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Mitigation of Penalties
Sample Selection - ^
As shown in Figure 1, we selected 30 Region 5 cases for
review. We randomly selected the sample from a universe of
451 cases. The percentage- of cases in each program area of
our sample represents a similar proportion of the universe. .
Since we did not select a statistical sample, the results of
our review can not. be projected to all cases in Region 5.
To select our sample, we obtained lists of fiscal years
1992- and 1993 penalties for Region 5 'from the Planning and
Management .Division. No audit tests were performed to
evaluate the adequacy of manual or automated- controls for the
information systems that generated these lists, nor the
validity, of the data maintained by these systems. Therefore,
we cannot and do not attest to the accuracy or integrity of
this data. . ' .
Figure'1: Composition of Sample Selection
Sample Selection By Program
Toxics/EPCRA (10)
34%
Pesticides (4)
13%
Air<4)
13%
Water (7)
23%
RCRA (5)
16%
BACKGROUND . ~ . ,
EPA's enforcement goal Is to achieve compliance with
environmental laws, regulations, and program requirements.
Civil penalties play an important role in an effective
Report No. E1GMG4-05-6009-4400107
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Mitigation of Penalties
As of June 1994, the Assistant Administrator was
reviewing "the workgroup recommendations. ^ '
Monitoring and Tracking of -Penalties ' ' ,...-
' " t ' ' . " . I ,,
Oi-G recommendations called for development of clearer
guidance' and management systems for monitoring penalty order
requirements until reaching compliance. In response to the
recommendations, OECA issued .the 'Manual'on Monitoring and ,
.Enforcing Administrative and Judicial Orders (Manual). The
Manual describes the procedure for collecting.administrative
penalties through Financial Management Offices (FMO). The
Manual also includes procedures for the monitoring,
collecting, and reporting of judicial penalties by the.
Department of; Justice to the Agency's Office of - '
''Administration-'and Resources Management Financial Management
Division (FMD). The Integrated 'Financial Management .System
(IFMS) maintains penalty amounts assessed and collected and
FMD reconciles the IFMS .information each quarter to source
documents' in regional FMOs.
Negotiation Skills Training '" ' j ' .'
. , '. ?'
". In response to our 1989 report, OECA assessed.the need
for mandatory negotiation skills training. Based .on the
'results of the OECA survey,.negotiation skills training
became mandatory on May 22, 1990, -for all. attorneys engaged
in enforcement negotiations, within one year of employment..
Attorneys currently with the Agency for longer than one year
without the training, 'or its equivalent, were to attend as
soon as feasible. Each Regional Counsel office had,the
discretion ,to waive the requirement upon showing, equivalent
training or experience. Also, the'Assistant Administrator
for Enforcement and-Compliance Assurance asked each Regional
Counsel to maintain records of training and waivers and
submit-an annual statistical summary to the Deputy Assistant
Administrator.
Although Region 5 maintained training.records on a
'database, the annual-statistical summaries were not provided'
to .Headquarters. ..Region 5-of f icials stated that they were
not.aware of, and OECA, did not follow-up on, the reporting
requirement. An. OECA offieial recently looked into'whether -
the summaries were submitted. The official determined that
OECA did not accumulate the information on regional training,
As a result,, OECA cannot ensure that regions trained
attorneys involved in negotiations. .
7
Report No. E1GMG4-05-6009-4400107
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Mitigation of Penalties
adherence to ,policres and documentation of penalt-ies and
. reductions. ..'''.' - ,
We identified a minor issue relating to the training'of
'attorneys involved in negotiations. We recommend that the
Assistant Administrator for Enforcement and Compliance
Assurance: (1)-expand the existing 'regional review to
include whether the regions are training attorneys involved
in negotiations and (2) reassess the need.for.regions to
submit the statistical summary of training., . '
'. Besides the-problem with negotiation'training, we also
identified one minor issue^relating to the documentation of
the appropriateness'of SEPs. We recommend that the Assistant
Administrator for Enforcement and Compliance Assurance expand
-the existing regional review to include whether the'regions
, are documenting the appropriateness of SEPs in.accordance
' with the policy.
-, AGENCY COMMENTS AND ACTIONS " -,
In response to our draft 'report,the OECA'Assistant
Administrator agreed to take action to address the issues
described above. Regarding the training of attorneys,' the
Assistant Administrator stated that both recommendations
appeared reasonable and will be implemented in the next round
of regional reviews, which will be completed during fiscal
' 1995. ' . ' ' . '' . '
.. The OECA Assistant Administrator also agreed with .the
recommendation cpncerning documenting the appropriateness of
SEPS. OECA also plans.to implement this recommendation in
the next round of regional reviews. OECA disagreed with the
.statement of Agency officials that "no clear guidance exists
which explains,how to determine the' appropriateness of
supplemental projects".- However, OECA stated that, "in the
interest of clarity and strengthening the policy, OECA is
substantially revising the SEP policy" ..,'This revision-is '
expected to be'completed during the first quarter of fiscal
1995. - - '
PIG EVALUATION" " ' .."'
The Agency', s proposed actions, when completed, will
resolve the issues.-,' - .
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(litigation of Penalties
ACTION REQUIRED ' - ' .
In response to the-draft report, your office provided us
an action plan with milestone dates for correcting the noted
weaknesses. We find your response"adequate and, "as of the
.date of- this-'report, we are closing out this special review
in 'our-audit.tracking system. Please track all .corrective
actions and. milestone dates in the Agency's Management Audit
Tracking System. Also, we have no objection to the release
of .this report to the 'public. . -. . " '
Should your staff have any questions or need additional
information, 'please'contact Charles Allberry,. Audif Manager,
Northern Audit Division, at (312) 353-4222. . '
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Mitigation of Penalties
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Appendix l
Page l 'of 2
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
. ' WASHINGTON, D.C. 20460
SUBJECT:
FROM:
TO:
- COMPLIANCE ASSURANCE
Response to Draft Report No. E1GMG4-05-6009 Regarding
Mitigation of Civil Penalties
Steven A. Henna
Assistant Administrator
Michael Simmons , ,
Associate Assistant Inspector General for
Internal and Performance Audits
We appreciated the opportunity to comment on your draft
follow-up review of the OIG's 1989 Capping Report on the
Computation. Negotiation. Mitigation, and Assessment of Penalties
Under EfA Programs. OECA finds such reviews a welcome -supplement
to our normal oversight activities. - '
While the report concluded. that EPA 'had effectively taken
action to address the findings and recommendations from the. 1989
Capping Report, it did identify two minor, issues that needed
further work. The first issue involves the training of Regional (,
attorneys involved in enforcement negotiations. As a result of.
the 1989 report, OECA made negotiations skills training mandatory
for 'all attorneys involved in enforcement negotiations. Each
Regional counsel was. required to maintain records of which
attorneys received training or had the, requirement waived." Each
.Regional Counsel was to provide an- annual statistical summary of
negotiations training to the Deputy Assistant Administrator .for
OECA. The draft report focused on Region 5', and found that ,
. although the Regional Counsel maintained the records, the
summaries were not being provided to OECA. In addition, OECA did-
not appear to be foliowing-up oh the reporting requirement. ,
The draft report recommends that we: l) expand the current .
regional reviews to include oversight into whether the attorneys -
involved in enforcement negotiations are getting the required
.training and 2) determine if the Regions should still submit the
statistical summaries of negotiations training. Both these
recommendations appear '''reasonable, .and we plan to implement them
in the next round of regional reviews. ' . .
The second minor issue involved documentation- of the
appropriateness of supplemental environmental ~ projects (SEPs) .
The current SEP policy requires documentation in the case file
demonstrating that the SEP in question met the appropriateness
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Mitigation of Penalties
Appendix 1
Page 2 of 2
criteria. None of the four case* you examined had such
documentation. In addition, the report states that some Agency
officials claimed that "no clear guidance exists which explains
how to determine the appropriateness of supplemental projects."
The draft-report recommends that we expand the existing Regional
reviews<"to include whether the regions are documenting the
appropriateness of SEPS in accordance with the policy.*
We agree with this recommendation as well. As with the
first two recommendations, OECA plans to implement them in the
next round of regional reviews. In regard to the question of
clear guidance, OECA feels that the guidance is clear as to what
SEPs are appropriate. Nevertheless, in the interest of .clarity
and strengthening the policy, OECA is substantially revising the -
SEP policy. I anticipate issuing the revised SEP policy some
time in the first quarter of FY 1995.
We once again want to express our appreciation for being '
given the opportunity to comment on the draft report. Should you
have any questions about our response, please contact Jonathan
Libber of my staff. . He may be reached at (202) 501-6011.
14.
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. . , ' '. Mitigation of PenaIties
' ! - - - - - Appendix 2
. ' , - Page 1-of 2
\ ' , - . DISTRIBUTION ''<'. . ' ' -
Inspector General (2421) ' ' ,'--.
i ~~ _..
Assistant.Administrator for Enforcement . -
. and-Compliance.Assurance (2211) \
" , .'- Agency Fqllowup Official; - .
., . .Attention:' Assistant Administrator for the Office of
; . . .Administration and Resources Management (3101)
"'_ . Agency Followup Coordinator (3102);
Attention: Director, Resource Management.,Division '
s ' . , ~^
Audit Followup Coordinator; . ','' -
Office of Enforcement and Compliance Assurance (2248-A) '
; Associate Administrator for Regional Operations '
"' and State/Local Relations (1501) . ' . ' ' . '
Associate Administrator' for Congressional arid ' t; ..
Legislative Affairs (1302) .
Associate Administrator for Communications, Education'
..and Public Affairs (1701) " , .
. . . 'Headquarters -Library (3404)
- _ ' Regional Administrator, Region 5. (R-19J) . ' .-.'-'.' ".
Regional Counsel, Region 5 (C-29A) . :
'. -Director,/Air and Radiation Division, 'Region 5 (A-18J)
- ,; Director, Water Division, Region 5 (W-i5J) , '
- Director, Waste Management Division, Region 5 (H-7J) .
.' " Director, Environmental Sciences Division,
,; Region 5. (S-14J-) . ' ' '
Regional Audit Followup Coordinator; ' " . '
,- . 'Attention: Assistant Regional Administrator for
. . ' % -Planning and Management (M-19J),
Regional Public Affairs Office (P-19J).
' ' ' . . ' '''" ' 15, . ' ' '
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Mitigation of Penalties
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