One of our readers made the comment that a recent Harvard/Georgetown University study on EPA’s Self-audit Policy shows that it may not be good for all companies.
Below is a brief summary of the Harvard/Georgetown findings from the reader’s website:
“Our results … demonstrate that Audit Policy participants with clean past compliance records improved their environmental performance by reducing their accidental releases of toxic chemicals to the environment. We also find that regulators rewarded these effective self-policers with an inspection holiday. By contrast, bad apple self-disclosers did not improve their performance compared with similar non-disclosing firms. We find no evidence that regulators altered their scrutiny over these ineffective self-policers.
… it turns out that regulators are quite adept at … sorting the good apples from the bad. We found that regulators had accurately parsed these two groups of self-disclosers, rewarding the former but not the latter with inspection holidays.
… self-disclosing firms on average reduce the number of abnormal events resulting in toxic chemicals being released to the environment.”
My comments on this study are as follows:
The study is flawed in its basic premise. It presupposes that a company undertakes the self audit because it expects an “inspection holiday” AND improved performance. Quite the contrary – the MAIN focus and reason for a company to go the self-audit route with EPA is to secure substantial penalty waiver and avert possible criminal sanction in the face of uncovered environmental violations. The subsequent improvement in environmental performance is a natural byproduct and bonus as a result of the remedial action following the self disclosure.
The study also finds out that “self disclosing firms on average reduce the number of abnormal events”. Well – the reason is very simple. They have few is because they perform audits! They discover small problems before they become major abnormal events. Nothing new here. That’s why people do environmental audits.
As to the “inspection holiday” – you do not need a Harvard study to discover that a regulatory agency carries out more inspections on the bad apples. It is common sense and it happens in the real world. Agencies generally do not waste their limited resources on good apples. Why would they? They can get a much larger return by going after the dirty companies. Again, nothing new here.