Environmental Compliance Auditing, Selling and Buying Business

As we have discussed in recentLegal UpdatesCompanies that want to be recognized as leaders in environmental compliance must conduct periodic audits of their environmental compliance and establish an environmental management plan. We also discussed programs of the environmental regulatory agency (Enviro-Check Green Tier) that reduce the risk of environmental enforcement and/or fines and penalties for businesses that voluntarily conduct environmental compliance audits, self-report any non-compliance that is discovered and agree to remedy the non-compliance.

Another reason to conduct environmental compliance audits is when a business is being purchased or sold. This is especially true if the business’ operations use or store hazardous substances (e.g. cleaning solvents, hydraulic oil) or generate hazardous wastes like used chlorinated solvents or universal wastes like lead-acid batteries or antifreeze. The environmental permit coverage will be transferred to the buyer if the purchasing entity plans to operate the same business as the selling entity. An environmental compliance audit should not be performed before the purchase. If this is not done, violations of environmental permit conditions or environmental regulatory requirements could not be detected. The purchasing entity may inherit an obligation for correcting any non-compliance. (Note: An audit of environmental compliance is not the same as a Phase I Environmental Site Assessment. [Phase I ESA]It is often performed as part the pre-purchase due research of real property. The Phase I ESA’s purpose is to determine if contamination is documented at the property or if there is potential for contamination. This is based on historical or current uses. An environmental compliance audit, in contrast, is an assessment and evaluation of a company’s environmental legal requirements and a report on how the company meets those requirements.

Many people are surprised to learn that even the most basic manufacturing operations often use or store hazardous substances or produce wastes. This could lead to a range of environmental permits and/or obligations. Some examples that could trigger an obligation for an environmental permit to be obtained or to comply with the environmental regulatory obligations are:

1. A facility that can store 1,320 gallons (25 55-gallon drums) of oil aboveground at any given time is required by federal law to prepare a Spill Prevention, Control, and Countermeasure Plan (SPCC). This plan is a comprehensive plan to address oil releases from a site.

2. Even if a facility doesn’t emit hazardous air pollutants, it may still be required to obtain an Air Permit.

3. If a facility keeps wooden pallets outdoors, has open dumpsters, or uncovered loading docks, it may be necessary to obtain a Stormwater permit and prepare Stormwater Pollution Prevention Plan.

4. If a facility produces aerosol spray cans that are not empty, they may be classified as hazardous waste. This means that the cans and their residual contents must be stored and disposed of in a special manner. To empty non-empty aerosol spray cans, it is important not to exhaust them into the atmosphere. Uncontrolled release of hazardous waste or containerized propellants (e.g. butane, propane) into atmosphere can be considered disposal of hazardous waste.

5. If a facility produces used fluorescent light bulb and antifreeze, it must be segregated with other wastes, known as Universal Wastes, and disposed within specified time periods.

These are just a handful of the most frequent areas in which environmental permits might be required and regulatory compliance obligations imposed.

Below is a list of some of the most important environmental regulatory compliance areas that are analyzed in an environmental compliance audit.

• Air Permitting includes the requirement to submit an annual inventory and periodic air emission calculation reports to a regulatory agency.

• Stormwater Permitting requires that you prepare a Stormwater Pollution Prevention Plan. The SWPPP must be updated annually. Stormwater discharges must also be monitored periodically.

• Wastewater Permitting includes the requirement to obtain wastewater permits from local Publicly-Owned Treatment Works, (POTW), and to monitor wastewater discharges periodically.

• Spill Prevention, Control and Countermeasure (SPCC), which includes the requirement for a SPCC Plan to be prepared and periodically updated;

• Tier II Reporting includes the obligation to report to an emergency planning authority the presence and quantity of hazardous and extremely dangerous substances at the site.

• Toxic Chemical Release reporting, including the requirement that you file with the Environmental Protection Agency, (EPA) a Toxic Chemical Release Inventory(TRI) Report. This is a comprehensive annual document that documents the use or release of toxic chemicals that are frequently used in industry.

• Hazardous waste compliance, which includes the requirement that hazardous wastes be properly handled and stored, properly disposed of, and tracked under the Resource Conservation Recovery Act, (RCRA), and to file annual reports to a regulatory body.

• Universal Waste Compliance refers to the obligation to properly store and dispose universal wastes.

• Aboveground Storage Tank Management (AST) or Underground Storage Tank Management (UST), including the obligation to correctly identify and store regulated dangerous substances and maintain AST/UST testing records.

Although the above list covers the most important areas that an environmental compliance audit should cover, it is not exhaustive and may contain other items depending on the type or operations of the facility.

An environmental compliance audit is usually performed by a third party environmental engineering or consulting firm when a business is being purchased/sold. An environmental compliance audit of manufacturing facilities can cost anywhere from $3,500 to $10,000. However, it all depends on the facility’s size and complexity. If non-compliance is not detected before the purchase/sale, the audit will save you money in penalties, fines and/or other measures.