Auditing Environmental Liabilities: New USEPA Priorities Could Impact Costs and Liability Recognition for “Superfund” Sites

In February, Scott Pruitt was sworn in as the new Administrator of the United States Environmental Protection Agency (USEPA, the “Agency”).  On May 22, Administrator Pruitt, upon being “astounded to learn there were over 1,300 ‘Superfund’ sites across the country” appointed a Superfund Task Force and charged the Task Force with providing recommendations to, among other things, promote the expeditious remediation of Superfund sites.

In late July, the Task Force returned to Administrator Pruitt, a list of five overall goals supported by 42 individual recommendations, each with its own list of “specific actions.”  At this time, the recommendations provided only apply to sites formally listed on the National Priorities List (NPL).  However, since one of the Administrator’s objectives is to complete and move sites off of the NPL (“delisting”) as expeditiously as practicable, sites that have been languishing on the proposed sites list may see greater speed in their elevation to formalization on the NPL.

By memorandum on July 25, Mr. Pruitt accepted the report of the Task Force and directed the agency to implement the recommendations.  Administrator Pruitt additionally directed the Agency to enact, “without delay” 11 of the recommendations that, in his opinion, were of the highest priority.

Several of the 42 recommendations may have the potential to improve cost-efficiency or reduce expenditures at some sites (ex. Adaptive Management (AM) principles applied to sediment sites; “flexibility” in groundwater restoration policies, etc.); however, others, including some characterized as priorities by the Administrator, appear to pose a risk of increased costs.  Further, some recommendations may fundamentally provoke or challenge a financial reporter’s assumptions regarding the probability of an obligation at some sites.

Of the five goals outlined by the Task Force, four are supported by recommendations that may result in cost risk:

  • GOAL 1: Expedite cleanup and remediation
  • GOAL 2: Re-invigorate responsible party cleanup and reuse
  • GOAL 3: Encourage private investment
  • GOAL 4: Promote redevelopment and community revitalization
  • GOAL 5: Engage partners and stakeholders


Eleven recommendations were developed for Goal 1.  Included among these are actions such as developing a list of “target” sites (within 30 days of the recommendations acceptance in July) that have languished in the system, based on criteria outlined in the recommendations, and prioritize them for enhanced Agency focus; and developing a “Top 10 Administrator’s Emphasis List” on sites determined to need “immediate and intense action.”

Additionally, in his memorandum, Administrator Pruitt specifically emphasized that the Agency should, without delay, prioritize and take action at any site where the risk of human exposure is not “fully controlled” and “utilize early or interim response actions, including removal authority or interim measures.

The Administrator’s highlighted focus on “interim action” and “removal authority” appears to suggest that lower cost remedies that do not aggressively address sources of contamination may be less acceptable to the Agency than they may have been before; particularly given the Administrator’s objective of not just addressing the control of contaminant movement at these sites but in actively de-listing them and facilitating their return to usable property.  For instance, a site at which management may have assumed that the use of Monitored Natural Attenuation (MNA) would be approved by the Agency now may find, depending on site circumstances, that they may, instead, be required to dig up soil in the source area of contamination, thereby remove it from the environment and allowing any remaining contamination in the adjacent areas to diminish more quickly.

Furthermore, the USEPA need not wait for a responsible party to perform the interim action or the contaminant removal.  The Agency has the authority to step in and perform the work they deem necessary to protect human health and the environment and to subsequently pursue the responsible party for reimbursement of their costs (the Administrator’s reference to “removal authority”).  Having the Agency perform the work directly could result in higher costs for the respondent.


Environmental legislation in the U.S. is largely based on the “polluter pays” principle and USEPA is charged with identifying, to the extent possible at any Superfund site, the Potentially Responsible  Parties (PRPs) who are liable for cleanup costs.  In the 37 years since CERCLA’s enactment, contribution and settlement negotiation have, arguably, been some of the most problematic aspects of the legislation.  Faced with cleanup costs that may have far exceeded a company’s assets, many responsible parties (current and former owners or operators) simply abandoned their sites and declared bankruptcy.  At sites where multiple parties have been named by the Agency, years, or even decades, may be spent while the parties attempt to demonstrate to the Agency for which costs they are, or are not, responsible.

Notably for financial reporting purposes, enhancing PRP response at Superfund sites forms one of the five overarching goals and several recommendations have been drafted specifically to address responsible party performance or nonperformance.  Several of these contain specific actions that may raise costs at some sites or hasten the formalization of an otherwise un-memorialized obligation.

Recommendation 16, in particular, contains a number of Specifc Actions that suggest a shift in Agency approach and a renewed focus on hastening the participation of parties that USEPA has identified as PRPs.  These include:

  • Action 7: Establish and promote strict adherence to project deadlines.
  • Action 8: Assess stipulated penalties [for missing deadlines].
  • Action 9: Trigger work takeover provisions when multiple deadlines are missed and access financial assurance when appropriate.
  • Action 11: Prohibit PRPs from multiple chances to revise the same document when initial submittal is sub par.
  • Action 12:  Actively use enforcement authorities, including more prevalent issuance of Unilateral Orders to recalcitrant parties to discourage protracted negotiations.

In particular, Action 12 may be of interest to financial auditors who may find that management has been named as a respondent by USEPA but is leveraging the patience of the Agency in the formalization of the obligation.  Based on the lack of an executed agreement or order, management may have concluded that the obligation is not “probable” when, in reality, the Agency may fully expect a response from the party to remediate contamination at the site but has allowed (or even introduced) delay in documenting the obligation with the courts.  The new intent of the Agency, to more fully or swiftly use its enforcement authorities, emphasized by Administrator Pruitt in his list of 11 priorities, may result in the rapid formalization of obligations at some sites and turn management assumptions of “reasonably possible” into highly “probable,” with no other fundamental change in the site fact pattern.

It is worthy to note that, should a responsible party fail to perform as required under a Unilateral Order, the Agency has the authority to charge the party, not only for the full cost of the investigation and remediation efforts (which USEPA would presumably take over), but also to impose a punitive fine of three times (3x) the full investigation and cleanup costs.  Largely because of these consequences, even the threat of a USEPA Unilateral Order can effect swift compliance with agency expectations.


Recommendations throughout the five Goals specifically emphasize the Agency’s, and the Administrator’s, interest in expediting the return of contaminated sites to usefulness and productivity within their communities.  Together, the six recommendations under Goal 4 and the three under Goal 5 outline the Agency’s expectation that redevelopment and reuse will not only be the Agency’s key directive but that all community stakeholders will be identified and proactive two-way communication with stakeholders is fundamental to successful redevelopment.

At some sites, the availability of financial partners in redevelopment may result in reduced costs to a PRP but it is also important to note that in areas that may be experiencing urban infilling or revitalization, the highest value of the property may no longer be through industrial use.  As examples, contaminated properties along rivers inside city limits may be more desirable to develop as high density residential or commercial areas.  Perhaps the greatest need for a community in a given perimeter will be a new school or park or perhaps the community most desires a fishable or scenic river.  In such cases, it is possible that costs of cleanup would be greater than otherwise required for industrial redevelopment.

Additionally, many of the recommendations of Goals 4 and 5 encourage and facilitate input from the communities within which the potentially redeveloped Superfund sites lie.  Considering the current sociopolitical landscapes, particularly in urban areas, and the use of social media, stakeholder participation may be more vocal, passionate, or brand-savvy, than might have been the case even a few years ago and may similarly drive a cleanup action or level that may not otherwise have been contemplated.

Of the 42 recommendations, 15 contain Specific Actions that have due dates before the end of FY17.  The rest are proposed to be enacted no later than the end of FY18.  In particular, the Agency directive regarding early actions at sites is proposed to be complete by Q4 FY17 with the reissuance of remedial guidance scheduled for Q1 of FY18.

Issuance of agency guidance and implementation of policy changes to support “disincentives to protracted negotiations or delayed cleanup” is proposed to be complete by Q1 FY18.  Given the Administrator’s insistence on expeditiousness and the list of eleven priority actions, it is conceivable that certain of these measures may be completed sooner.


Considering the rapid acceptance of the Task Force’s recommendations by the Administrator on July 25th, and the timelines for the recommendations themselvesit can be considered that changes in approach at many Superfund sites (particularly the sites to be prioritized by name by the Agency) can be expected in the near term.  Some of these changes may ultimately result in a decrease in expected costs but, in others, costs have the potential to increase significantly or the Agency may aggressively pursue respondents in the courts for their performance or contributions resulting in a change of probability assumptions on the part of management.

In the current year, it may be prudent for financial auditors to understand what consideration management has given the recommendations and what impacts could be expected at sites within the company’s portfolio in the near future.  This may be additionally highlighted by recent financial regulatory interest in the strength of a company’s disclosures.  Additionally, auditors may wish to consider what impacts, if any, the Agency recommendations have on the risks identified during audit planning and what procedures are necessary to address the risk.

In the next few years, environmental liability reserves for Superfund sites could look a lot different than they do today.  External auditors with clients holding Superfund sites (or sites proposed for listing as Superfund sites) in their portfolios should follow developments in this area to position themselves to better understand and challenge management assumptions.


©2017 by OAK Advising & Consulting, Inc.