Regulatory Reform: Implementation of Selected Agencies' Civil Penalty Relief Policies for Small Entities
Published: 2001-02-20T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: One of the ways that federal regulatory agencies enforce applicable statutes and regulations is through the imposition of civil monetary penalties for violations of those statutes and regulations. The amounts of the penalties imposed can vary substantially, depending on the limits specified in the applicable statutes or regulations and the degree to which the agencies impose the maximum fines permitted. Congress provided agencies with substantial discretion in developing their Small Business Regulatory Enforcement Fairness Act (SBREFA) policies. Not surprisingly, the agencies used that discretion and developed policies that vary substantially. The agencies also varied in how key terms were defined and in their policies' conditions and exclusions. This variability notwithstanding, all of the agencies' policies and programs that GAO reviewed were within the discretion afforded to them by the SBREFA Agencies were allowed to limit the scope of their programs to only a portion of their enforcement actions against small entities, and they could decide not to give small entities any additional penalty relief. Agencies were also allowed to establish whatever conditions or exclusions they wanted for participation in their programs, subject to the requirements and limitations in other statutes.

section_title: Letter
paragraphs: One of the ways that federal regulatory agencies enforce applicable  statutes and regulations is through the imposition of civil monetary  penalties for violations of those statutes and regulations. The amounts of  the penalties imposed can vary substantially, depending on the limits  specified in the applicable statutes or regulations and the degree to which  the agencies impose the maximum fines permitted. In 1996, Congress  passed the Small Business Regulatory Enforcement Fairness Act  (SBREFA) (5 U.S.C. 601 note), which was intended to, among other things,  “create a more cooperative regulatory environment among agencies and  small businesses that is less punitive and more solution-oriented.” Section  223 of SBREFA, entitled “Rights of Small Entities in Enforcement Actions,”  requires agencies to provide small entities (a small business, a small  government, or a small organization) with some form of relief from civil  monetary penalties. Specifically, subsection 223(a) of SBREFA required  federal agencies regulating the activities of small entities to establish a  policy or program by March 29, 1997, for the reduction and, under  appropriate circumstances, the waiver of civil penalties by small entities.  Subsection 223(c) of the act required agencies to submit a one-time report  to four congressional committees by March 29, 1998, on the scope of their  programs or policies, the number of enforcement actions against small  entities that qualified or failed to qualify for the SBREFA program or policy,  and the total amount of penalty reductions and waivers.
You asked us to examine the implementation of section 223 of SBREFA and  issues related to civil penalty enforcement in selected agencies.
Specifically, you asked us to (1) describe the similarities and differences in  the selected agencies’ policies or programs under subsection 223(a) of the  act; (2) determine how many civil penalty enforcement actions each  selected agency had initiated against small entities in each fiscal year since  SBREFA’s enactment, and how many of those actions resulted in some kind  of penalty relief (either a waiver or penalty reduction); and (3) determine  whether any of the civil penalty enforcement actions that did not result in  penalty relief involved paperwork requirements and, if so, why a waiver or  penalty reduction was not provided in those cases. We focused our review  on five federal agencies that have civil monetary penalty authority,  appeared to have developed a large number of rules affecting small entities,  and were of interest to the Subcommittee: the Environmental Protection  Agency (EPA), the Federal Communications Commission (FCC), the  Immigration and Naturalization Service (INS) within the Department of  Justice (DOJ), and the Occupational Safety and Health Administration  (OSHA) and the Mine Safety and Health Administration (MSHA) within the  Department of Labor (DOL).
subsections: section_title: Background
paragraphs: Small businesses are a significant part of the nation’s economy, accounting  (under SBA’s definition) for 99 percent of all businesses, about 50 percent  of the gross domestic product, and about 53 percent of private industry’s  workforce. Small governments make up 97 percent of all of the local  governments in the United States. However, small businesses and  governments can be disproportionately affected by federal agencies’  regulatory requirements, and agencies may inadequately consider the  impact of those requirements on small entities when the requirements are  implemented.
In response to concerns about the effect that federal regulations may have  on small entities, Congress passed the Regulatory Flexibility Act (RFA) in  1980 (5 U.S.C. 601-612). The RFA requires federal agencies to analyze the  anticipated effects of rules they plan to propose on small entities unless  they certify that the rules will not have a “significant economic impact on a  substantial number of small entities.” We have reported several times on  the implementation of the RFA, noting areas in need of improvement.
On March 29, 1996, Congress passed SBREFA to, among other things,  strengthen the RFA’s protections for small entities and “create a more  cooperative regulatory environment among agencies and small businesses  that is less punitive and more solution-oriented.” Subsection 223(a) of  SBREFA directed each federal agency regulating the activities of small  entities to establish a policy or program by March 29, 1997, “to provide for  the reduction, and under appropriate circumstances for the waiver, of civil  penalties for violations of a statutory or regulatory requirement by a small  entity.” Subsection 223(b) identifies certain “conditions and exclusions”  that agencies’ policies or program could include (e.g., requiring the small  entity to correct the violation within a reasonable period of time and  excluding violations that pose serious health, safety, or environmental  threats). Although the agencies’ policies and programs were required to  contain conditions and exclusions (subject to the requirements or  limitations in other statutes), agencies were not required to include the  conditions and exclusions listed in the subsection and were not limited to  those listed. Subsection 223(c) required agencies to submit a one-time  report to four specific congressional committees by March 29, 1998, on (1)  the scope of their programs or policies, (2) the number of enforcement  actions against small entities that qualified or failed to qualify for the  programs or policies, and (3) the total amount of penalty reductions and  waivers.
Comments by the drafters of SBREFA at the time the act was passed  underscore the discretion that agencies have in the development and  implementation of their section 223 programs and the degree to which  agencies can use existing programs to satisfy the act’s requirements. Their  statement, entitled the “Joint Managers Statement of Legislative History  and Congressional Intent,” says that “ach agency would have the  discretion to condition and limit the policy or program on appropriate  conditions,” and “it is up to each agency to develop the boundaries of their  program and the specific circumstances for providing for a waiver or  reduction of penalties.” The statement also noted that “ome agencies  have already established formal or informal policies or programs that  would meet the requirements of this section” and specifically referred to  EPA’s small business enforcement policy in this regard.
The enactment of SBREFA marked the second time in less than a year that  agencies had been encouraged to provide penalty relief to small  businesses. In April 1995, President Clinton, by memorandum, directed the  heads of 27 departments and agencies to modify the penalties for small  businesses in certain situations “to the extent permitted by law.” For  example, the memorandum said agencies “shall exercise their enforcement  discretion to waive the imposition of all or a portion of a penalty when the  violation is corrected within a time period appropriate to the violation in  question.” The memorandum also required each agency to submit a plan to  the Director of the Office of Management and Budget (OMB) describing the  actions the agency would take and said the plan must provide that the  agency will implement the policies on or before July 14, 1995. It also said  that the plans should identify how notification of the agencies’ policies will  be given to frontline workers and small businesses.
We have recognized in previous reports that enforcement is an important  element of regulatory management and civil penalties are important to  agencies’ enforcement efforts. For example, in a 1996 report on the Clean  Water Act we said “penalties play a key role in environmental enforcement  by deterring violators and by ensuring that regulated entities are treated  fairly and consistently so that no one gains a competitive advantage by  violating environmental regulations.” In another report, we said civil  monetary penalties “are potentially a strong deterrent” to noncompliance  with nursing home regulations, and we also said those penalties “have  potential to provide the necessary incentives to ensure continued  compliance.”
However, some Members of Congress have become concerned about the  impact that civil penalties can have on small businesses and other small  entities, particularly for infractions that may be relatively minor in nature.  During the 105th Congress, the House of Representatives approved  legislation that would have required federal regulatory agencies, in certain  circumstances, to suspend civil fines on small businesses for first-time  paperwork violations so that the small businesses could correct the  violations. Similar legislation was introduced in the Senate but was not  enacted. In commenting on this proposed legislation, EPA and other  agencies indicated that information collection requirements are the  foundation of many health and safety statutes, and that violations of those  requirements should not automatically be treated as a minor infractions  meriting a waiver of civil penalties. In testimony before the Senate  Committee on Governmental Affairs, the Administrator of the Office of  Information and Regulatory Affairs within OMB said the Clinton  administration strongly opposed the Senate bill, noting that “e already  have a powerful tool designed to give protection to small business  owners”—section 223 of SBREFA. The Administrator said that OMB was  not aware of any significant problems with the implementation of section  223. However, he also said that if there are “gaps” in section 223 that need  correction, OMB would be willing to help craft an appropriate amendment.
section_title: Objectives, Scope, and Methodology
paragraphs: The objectives of our review were to (1) describe the similarities and  differences in the selected agencies’ policies or programs under subsection  223(a) of SBREFA; (2) determine how many civil penalty enforcement  actions each selected agency had initiated against small entities each fiscal  year since SBREFA’s enactment and how many of those actions resulted in  some kind of penalty relief (either a waiver or penalty reduction); and (3)  determine whether any of the civil penalty enforcement actions that did not  result in penalty relief involved paperwork requirements and, if so, why a  waiver or penalty reduction was not provided in those cases.
To identify the agencies included in our review, we examined the October  editions of the Unified Agenda of Federal Regulatory and Deregulatory  Actions for fiscal years 1997, 1998, and 1999 to identify the agencies that  most frequently appeared to issue rules with a significant economic impact  on a substantial number of small entities. Ten departments and agencies  had at least 50 entries in at least 1 of these editions of the Unified Agenda— EPA; FCC; and the Departments of Agriculture, Commerce, Health and  Human Services, the Interior, Justice, Labor, Transportation, and the  Treasury. On the basis of the Subcommittee’s interests, we selected EPA,  FCC, DOJ, and DOL for inclusion in the review. Within DOJ and DOL, we  identified the agencies that accounted for most of the departments’ totals— INS within DOJ and MSHA and OSHA within DOL. We then confirmed that  each of the five agencies selected had civil penalty authority.
To address the first objective of describing the similarities and differences  in the selected agencies’ policies, we obtained a copy of the report that  each of the agencies submitted in 1998 pursuant to subsection 223(c) of  SBREFA from the Senate Committee on Small Business. We also obtained  copies of each agency’s policies and reports from the agencies or through  the Internet. We reviewed the agencies’ policies and policy descriptions in  their reports, noting areas of similarity and difference (e.g., whether the  agencies’ policies provided civil penalty relief for small entities and the  scope of the policies’ coverage). We then clarified, where appropriate, our  characterizations of the agencies’ policies with agency officials.
We also attempted to use the agencies’ subsection 223(c) reports to address  the second objective—determining how many civil penalty enforcement  actions the agencies had initiated and how many resulted in penalty relief.  However, two of the reports did not contain any enforcement data, and in  two other cases the data were not presented in the manner specified in the  statute or consistent with our objective. Therefore, we asked officials in  each selected agency to identify how many civil penalty enforcement  actions the agency had initiated against small entities each fiscal year since  SBREFA’s enactment (i.e., fiscal years 1997, 1998, 1999, and 2000), and how  many of those actions in each year resulted in some penalty relief and no  penalty relief.
To address our third objective regarding paperwork requirements, we  asked the agencies to identify how many of the enforcement actions  against small entities that resulted in no penalty relief involved a  paperwork requirement. We also asked the agencies to explain why those  paperwork-related actions did not result in civil penalty relief. We defined a  “paperwork requirement” as involving a collection of information approved  by OMB pursuant to the Paperwork Reduction Act of 1995.
This review focused on five selected agencies and cannot be used to  characterize the SBREFA programs or policies in other agencies. However,  we believe these agencies’ programs and policies illustrate the variation in  such policies among agencies with a significant regulatory impact on small  entities. We did not validate the reliability of the enforcement data that  agencies provided. We conducted our review between August 2000 and  December 2000 in accordance with generally accepted government  auditing standards.
We provided a draft of this report to the Secretary of Labor, the Attorney  General, the Chairman of the Federal Communications Commission, and  the Administrator of the Environmental Protection Agency for their review  and comment. DOJ, DOL, and FCC officials had no substantive comments  on the report. The EPA comments that we received are discussed in the  “Agency Comments and Our Evaluation” section at the end of this letter,  and are reproduced in appendix I.
section_title: Selected Agencies’ Section 223 Penalty Relief Policies Varied
paragraphs: The five agencies’ section 223 policies vary substantially among, and  sometimes within, the agencies in terms of (1) whether they apply to all  penalty-related enforcement actions involving small entities, (2) whether  they provide entities with more penalty relief than similarly situated larger  entities, (3) how key terms such as small entity and penalty reduction are  defined, and (4) their conditions for and exclusions from penalty relief.  Agency officials said that none of the agencies’ policies were developed  because of SBREFA, and most of the policies had been established before  the act took effect.
subsections: section_title: Agencies’ Policies Were Not Adopted in Response to SBREFA
paragraphs: The five selected agencies identified eight penalty reduction and waiver  policies as implementing subsection 223(a) of SBREFA. According to the  agencies’ 1998 reports and our interviews with agency officials, none of the  eight policies were adopted as a result of SBREFA’s enactment, and most of  the policies had been established before the act took effect. As previously  noted, the drafters of SBREFA recognized that agencies could use existing  programs to satisfy the act’s requirements. Some agencies took steps after  SBREFA was enacted to publicize and market their existing programs to  small entities.
EPA said in its 1998 report that the agency had “historically addressed  the special circumstances of many small entities when assessing  penalties in enforcement actions.” EPA also said that its program to  reduce or waive penalties for small entities consisted of three separate  policies, each of which had been initiated before the enactment of  SBREFA.  EPA issued its Final Policy on Compliance Incentives for Small  Businesses (small business policy) on May 20, 1996. The policy  provides penalty waivers to entities with 100 or fewer employees as  incentives to voluntarily disclose violations and to participate in  compliance assistance.
EPA’s policy on Incentives for Self Policing: Discovery, Disclosure,  Correction, and Prevention of Violations (audit policy), was initially  published in the Federal Register on December 22, 1995, and was  revised and republished as the final policy on April 11, 2000. The  policy provides for reductions and waivers of penalties for entities of  all sizes that promptly disclose violations in writing and correct those  violations.
EPA’s Policy on Flexible State Enforcement Responses to Small  Community Violations (small community policy), was issued in  November 1995. Under this policy, states may provide small  communities with an incentive to request compliance assistance by  waiving or reducing the penalty if certain criteria are met. This policy  has not been published in the Federal Register, but EPA officials said  it was distributed directly to state and local government  stakeholders.
As we discuss more fully later in this report, these three policies do not  cover all EPA enforcement actions involving small entities, and do not  include all civil penalty relief that small entities can receive from EPA.
FCC said that its existing civil penalty (“forfeiture”) policies met the  subsection 223(a) requirement. FCC officials said the policy was first  published in the Federal Register on August 14, 1997, and became  effective on October 14, 1997, replacing a 1991 general policy  statement. The Commission noted that many of the factors delineated  in SBREFA as potentially relevant considerations in decisions regarding  penalty relief were already contained in the Communications Act of  1934, as amended, and were codified in its rule on forfeiture  proceedings.
INS said in its 1998 report that it had “long-established policies” to  provide for the reduction or waiver of civil penalties for small entities.  INS officials told us during this review that the agency’s civil penalty  authority regarding small entities primarily related to the following two  areas of regulatory activity: (1) employment verification under section  274A of the Immigration and Nationality Act (INA), as amended by the  Immigration Reform and Control Act of 1986; and (2) oversight of air  and sea carriers who bring aliens into the United States under section  273 of the act, as amended.
In the employer verification area, INS pointed to its “Guidelines for  Determination of Employer Sanctions Civil Money Penalties,” which  were issued in August 1991, as satisfying subsection 223(a) of  SBREFA. INS said that the guidelines had been continually updated  since their issuance and are part of the INS Field Manual. A less  specific version of the INS civil monetary penalty policy was  published in the Federal Register in 1987 and was codified in the  Code of Federal Regulations. INS also noted in the 1998 report that  it published a proposed rule on April 7, 1998, seeking to amend the  agency’s regulations implementing section 411 of the Illegal  Immigration Reform and Immigrant Responsibility Act of 1996. INS  said this statutory provision was aimed at allowing employers of any  size who have made a good faith attempt to comply with a particular  employment verification requirement to correct technical or  procedural failures before they are deemed to be violations of the  act. At the time of our review, this proposed rule had not been issued  in final form.
Regarding carriers, INS pointed to a June 10, 1996, proposed rule on  “Screening Requirements of Carriers for Reduction, Refund, or  Waiver of Fines” as satisfying subsection 223(a) of SBREFA. INS  published the final rule on April 30, 1998.
MSHA said that an existing general civil monetary penalty relief policy  satisfied the SBREFA subsection 223(a) requirement. The policy was  published in the Federal Register on May 21, 1982. In August 1999,  MSHA supplemented the policy with a policy letter that “provides  clarification of the statutory and regulatory provisions governing the  assessment of civil penalties” under the Federal Mine Safety and Health  Amendments Act of 1977.
OSHA said that an existing policy for granting civil monetary penalty  relief met the SBREFA subsection 223(a) requirement. OSHA officials  said the policy dates back to the Occupational Safety and Health Act of  1970 and was most recently published as a March 1998 instruction  directive entitled “Providing Assistance to Smaller Employers.” The  directive summarizes OSHA’s detailed penalty relief procedures in its  September 1994 “Field Inspection Reference Manual.” OSHA’s policy has  not been published in the Federal Register.
With the exception of EPA’s small community policy statement and OSHA’s  instruction directive, all of the agencies’ civil penalty relief policies have  been published in the Federal Register and/or the Code of Federal  Regulations. FCC replaced its 1991 policy statement with a formal rule  after the policy statement was successfully challenged in court. The court  concluded that the policy was a rule that was promulgated without notice  and opportunity for comment and, therefore, was invalid.
The agencies’ authorizing statutes often guide the scope and details of their  civil penalty relief policies. For example, section 273 of INA generally did  not permit INS to waive or reduce fines imposed on carriers of passengers  transported into the United States until the act was amended in 1994 by the  Immigration and Nationality Technical Corrections Act of 1994. Also,  certain agencies’ authorizing statutes require that certain minimum fines be  imposed or that certain factors be taken into consideration when granting  penalty relief. For example, section 17(a) of the Occupational Safety and  Health Act of 1970, as amended, states that any employer who willfully or  repeatedly violates certain statutory provisions or associated regulations  “may be assessed a civil penalty of not more than $70,000 for each  violation, but not less than $5,000 for each willful violation.”
section_title: Policies Vary in Degree to Which All Small Entity Enforcement Actions and Relief Are Covered
paragraphs: The agencies’ section 223 policies vary in the extent to which they cover all  civil penalty-related enforcement actions involving small entities and all  instances in which small entities can receive civil penalty relief. FCC’s,  OSHA’s, and MSHA’s policies generally apply to any of the agencies’ federal  civil penalty enforcement actions involving small entities. However, an  OSHA official said that the agency has interpreted SBREFA as not applying  to state health and safety programs approved by OSHA. Therefore, the  OSHA enforcement data that we discuss in a later section of this report do  not include penalty relief that small entities have received under those state  programs.
EPA said states are encouraged, but not required, to adopt the agency’s  section 223 policies in agency-approved state environmental programs.  However, those policies cover only a portion of the various types of  enforcement actions in the agency involving small entities. For example,  EPA officials said that only two states—Nebraska and Oregon—had  adopted the agency’s small community policy at the time of our review.  Also, EPA’s small business policy and the agency’s audit policy both require  small businesses to voluntarily disclose violations in order to receive civil  penalty relief. However, small businesses can receive civil penalty relief  without voluntary disclosure as a result of the regular administration of  nine environmental statutes EPA administers that permit the use of civil  penalties. Therefore, EPA or state environmental officials could discover  a violation of one of these statutory requirements by a small entity, propose  a civil penalty, and provide the entity with either a waiver or a reduction of  the penalty—all without reference to section 223 of SBREFA. As a result,  EPA officials said that the data that we discuss later in this report does not  include all instances in which small entities receive civil penalty relief.
Similarly, INS officials indicated that their two section 223 policies cover  only a portion of the types of agency enforcement actions, and said that the  number of small entities receiving penalty relief under the agency’s carrier  policy represents only a portion of the total number of small entities  receiving penalty relief under various other sections of INA. For example,  the officials said that carriers could also receive penalty relief under at  least five other sections of the act, including section 234 (no advance notice  of aircraft arrival or aircraft landing at an unauthorized place), section 255  (employment on passenger vessels of crewmen with certain afflictions),  and section 256 (improper discharge of alien crewmen).
section_title: Policies Vary in Extent to Which Small Entities Receive Extra Penalty Relief
paragraphs: The selected agencies’ section 223 policies vary in the extent to which they  provide small entities with more penalty relief than similarly situated larger  entities. Some of the policies (the FCC, EPA audit, and INS carrier policies)  provide small entities with no greater penalty relief than they provide to  any other regulated entity. Under these broad agency policies, small  entities can receive penalty relief on the basis of other factors (e.g., their  ability to pay the penalty), but size is not an explicitly relevant factor in  determining either the amount of the initial penalty assessed or any  reductions from that initial assessment. Other section 223 policies (EPA’s  small business and small community policies) apply only to small entities.  In still other policies (MSHA, OSHA, and INS employment verification),  small entities can get penalty relief over and above that provided to larger  entities because they meet certain size-related criteria. In some of these  policies, the smaller the business, the greater the penalty reduction they  can receive. For example, OSHA’s policy indicates that employers with 101  to 250 employees can get a 20-percent reduction in civil penalties,  employers with 26 to 100 employees can get a 40-percent reduction, and  employers with 25 or fewer employees can get a 60-percent reduction.  OSHA does not consider employers with more than 250 employees “small  businesses,” and they therefore are ineligible for size-related penalty relief.
In four of the five agencies included in our review (EPA, OSHA, MSHA, and  INS), the agencies’ use of targeted relief for small entities is at least  sometimes directly traceable to underlying statutes. For example, the  Occupational Safety and Health Act of 1970, as amended, requires OSHA to  assess civil penalties taking into account, among other things, “the size of  the business of the employer being charged.” Similarly, the Federal Mine  Safety and Health Amendments Act of 1977 requires MSHA to consider,  among other things, “the appropriateness of such penalty to the size of the  business of the operator charged.”
section_title: Policies Vary in How Key Terms Are Defined
paragraphs: The agencies’ section 223 policies also vary in how certain key terms such  as small entity and penalty reduction are defined or used.
subsections: section_title: Small Entity
paragraphs: SBREFA indicated that the term small entity should be defined the same  way it is defined in the RFA—a small business, a small government, or a  small organization. The RFA defines each of these terms but identifies a  process for agencies to establish other definitions. For example, the act  says that the term “small business” has the same meaning as the term  “small business concern” under section 3 of the Small Business Act, unless  an agency, after consultation with the Office of Advocacy of the Small  Business Administration and after opportunity for public comment,  establishes one or more definitions of such term which are appropriate to  the activities of the agency and publishes such definition(s) in the Federal  Register.”
As previously noted, several of the agencies’ section 223 policies (FCC, INS  carriers, and EPA audit) provide small entities with no greater penalty  relief than that provided to larger entities, all other factors being equal. Not  surprisingly, therefore, the term small entity is undefined in these policies.  Other agencies’ policies that give small entities extra relief either define the  term small entity or the agency was able to describe how the term is used in  the administration of the policy. However, the policies’ definitions of a  small entity vary among the agencies, and sometimes vary within the same  department or agency. For example:  EPA’s small business policy defines a small business as a person,  corporation, partnership, or other entity that employs 100 or fewer  individuals across all facilities and operations owned by the business. OSHA’s policy says that small entities eligible for civil penalty relief are  those with 250 or fewer employees at all work sites at any one time  during the previous 12 months.
MSHA’s policy does not specifically define the term small entity.
Although MSHA traditionally defines a small mine as having fewer than  20 employees, the agency also sometimes uses SBA’s definition of a  small entity for the mining industry—500 employees or fewer.  However, in its regular penalty assessments, MSHA defines the size of a  regulated entity by either the number of hours worked or by tonnage of  production.
EPA’s definition of a small government eligible for penalty relief also varies.  For example, EPA said that any small government or small organization  employing 100 or fewer individuals is eligible for penalty relief under the  small business policy. However, EPA’s small community policy is targeted  toward certain communities on the basis of the number of residents (fewer  than 2,500), not the number of employees in their local governments.  Although the INS employment verification policy requires consideration of  the size of the regulated entity in determining penalty assessments, the  policy does not define the term small entity.
section_title: Penalty Reduction
paragraphs: Most of the agencies’ section 223 policies do not contain an explicit  definition of a penalty reduction. However, our discussions with officials in  the agencies indicated that the term is being used differently across the  agencies. For example, the INS carrier enforcement office considers a  penalty reduction to be the difference between the penalty imposed on the  regulated entity and the statutory maximum penalty. For example, if the  statutory maximum penalty for a particular violation was $3,300 and the  penalty ultimately imposed on the entity was $1,000, the INS carrier  enforcement office considers the $2,300 difference to be the amount of the  penalty reduction. However, EPA officials said that the agency does not  consider the statutory maximum in determining the amount of penalty  relief provided under its section 223 policies. Instead, they said that a  penalty reduction is the difference between the amount initially proposed  and the amount ultimately assessed. Using the above example with a $3,300  statutory maximum penalty, if EPA initially determined that the penalty  should be $1,300 but later reduced the penalty to $1,000, the amount of  penalty relief provided would be $300.
The agencies’ policies also differ in how penalty reductions are triggered.  For example, under OSHA’s policy, penalty reductions are automatically  provided on the basis of preestablished formulas, and further reductions  can occur if the initial penalty determination is appealed. Under the INS  carrier policy, penalty relief can occur upon application by the carrier, or  automatically under a prearranged memorandum of understanding  between the carrier and INS. Penalty relief under EPA’s small business  and audit policies is triggered only when the small entity voluntarily  discloses a violation and asks for relief under the policy.
section_title: Policies Vary in Applicable Conditions and Exclusions
paragraphs: Section 223 of SBREFA states that agencies must establish certain  “conditions and exclusions” in their penalty relief policies. Although the  statute does not require the use of any particular condition or exclusion, it  does identify some for possible inclusion. In subsection 223(a), the act says  that under the appropriate circumstances, “an agency may consider ability  to pay in determining penalty assessments on small entities.” Subsection  223(b) lists six conditions and exclusions that agencies may include in their  penalty relief policies or programs:  requiring the small entity to correct the violation within a reasonable   limiting the applicability to violations discovered through participation  by the small entity in a compliance assistance or audit program operated  or supported by the agency or a state;  excluding small entities that have been subject to multiple enforcement  actions by the agency;  excluding violations involving willful or criminal conduct;  excluding violations that pose serious health, safety, or environmental   requiring a good faith effort to comply with the law.
As table 1 illustrates, the agencies’ section 223 policies and related  administrative procedures varied in the extent to which they included these  suggested conditions and exclusions. All of the policies excluded small  entities from receiving penalty relief if they had been subject to multiple  enforcement actions. Other common exclusions were violations that  involved serious health, safety, or environmental threats and violations  involving willful or criminal misconduct. Only one of the policies limited  their applicability to violations discovered through participation by the  small entity in a compliance assistance or audit program—EPA’s audit  policy. EPA’s small business policy contained this condition until April  2000. The agency decided to eliminate this requirement in order to make it  easier for small businesses to take advantage of the policy. Since then, the  policy has allowed small businesses to receive penalty relief if violations  are discovered by any voluntary means (e.g., via participation in training  classes; use of on-line compliance assistance centers; or use of checklists,  even if not sponsored by an environmental regulatory agency).
Subsection 223(b) of SBREFA makes it clear that the conditions and  exclusions that agencies can include in their small entity penalty relief  programs and policies are not limited to those suggested in the act. Each of  the agencies’ policies do, in fact, include other factors. For example:  FCC’s authorizing statute for civil monetary penalties gives the agency  the broad discretion to take into account “such matters as justice may  require.”
OSHA’s and MSHA’s authorizing statutes for civil monetary penalties  require each agency to consider the gravity of the violation as an  additional policy term. MSHA’s statute also requires consideration of the  “negligence” of the regulated entity.
As previously noted, EPA’s small business policy and the agency’s audit  policy require violations to be voluntarily disclosed in order to qualify  for certain penalty reductions. EPA officials said that environmental  statutes also require consideration of such factors as the degree of  culpability of the violator and the economic benefit derived from the  violation.
The INS carrier regulation also requires the INS to consider the  “effectiveness of the carrier’s screening procedures,” and the “existence  of any extenuating circumstances.”
The INS employer sanctions regulation also requires INS to consider the  “seriousness of the violation” and “whether or not the individual was an  unauthorized alien.”
As previously discussed, agency-specific statutes for four of the five  agencies require them to consider the size of the entity as an explicit  penalty relief condition.
section_title: Most Agencies Were Not Able to Provide Enforcement Data in the Format Requested
paragraphs: MSHA was the only one of the five agencies that provided all of the data  required by subsection 223(c) of SBREFA, and it was also the only agency  that was able to provide us with more recent data on enforcement actions  against small entities. The other agencies either (1) provided data on  inspections or small entities, not enforcement actions; (2) said they could  only provide data on enforcement actions initiated against entities of any  size, not just small entities; or (3) provided data that were inconsistent and  incomplete.
subsections: section_title: Some Agencies Did Not Provide Required Data in Their 1998 SBREFA Reports
paragraphs: Subsection 223(c) of SBREFA required agencies to report by March 1998 on  the status of their penalty reduction and waiver programs. Specifically, the  statute said that agencies should report the number of enforcement actions  against small entities that qualified or failed to qualify for their program or  policy and the total amount of penalty reductions and waivers. Although  this was a one-time reporting requirement, we reviewed the five selected  agencies’ section 223 reports to obtain data relevant to our second  objective—to determine how many civil penalty enforcement actions each  selected agency had initiated against small entities each fiscal year since  SBREFA’s enactment, and how many of those actions resulted in some  form of penalty relief.
Two of the agencies—FCC and INS—provided no small entity-related  enforcement data in their 1998 reports. FCC reported the number of  enforcement actions taken and the number of persons or entities that  received penalty cancellations or reductions between June 1996 and  January 1998 in relation to all regulated entities, not just small entities.  INS noted in its report that the agency had investigated approximately  6,000 businesses during fiscal year 1997 for violations of section 274A of  the INA, resulting in a notice of intent to fine in 888 of those cases.  However, INS did not indicate how many of those investigations or notices  involved small entities.
Two other agencies provided data in their reports that focused on small  entities and offered useful insights into their section 223 programs, but that  were not exactly what the statute required. EPA reported that through the  end of fiscal year 1997, 95 small entities had received relief under its  section 223 program, 10 small entities had not qualified for the program,  and 44 cases were still under consideration. EPA also reported that nearly  $900,000 in penalties had been reduced or waived through the program.  However, EPA’s data focused on the number of small entities that had and  had not received relief under the program, not the number of enforcement  actions initiated against small entities that qualified and failed to qualify for  the program. Also, as EPA noted in its report, the data may understate the  number of small entities receiving penalty relief and the dollar amount of  that relief. The report presented data for penalty relief provided to small  entities under what EPA considered its section 223 policies (as the statute  required). However, the report did not reflect any penalty relief that small  entities may have received under EPA’s general enforcement and penalty  policies (i.e., when the small entity did not voluntarily disclose the  violation) or relief granted through state enforcement programs.
In its 1998 report, OSHA provided data showing the number of  “enforcement actions” (14,550) between March 29, 1997, and December 31,  1997, in which penalties were reduced by size of business categories (e.g., 1  to 10 employees, 11 to 20 employees, etc.). However, the report also  indicated that the unit of analysis was small entities, not enforcement  actions. OSHA officials told us during this review that the data actually  reflect the number of inspections in which penalties were reduced. This  difference in the unit of analysis can be important because a single  inspection can involve a number of enforcement actions. In its report,  OSHA also provided the dollar amount of penalty reductions provided to  small entities during this period ($107 million) and said that about three- quarters of this amount was based solely on the size of the businesses.
MSHA’s 1998 report provided the required enforcement data in the manner  that the statute stipulated. MSHA said that between April 1, 1997, and  December 31, 1997, the agency took approximately 77,000 enforcement  actions against small entities. Of these, MSHA said that about 48,000  actions were single penalty assessments that did not qualify for a penalty  reduction, and the remaining 29,000 actions received penalty reductions  totaling about $2.1 million.
subsections: section_title: Time Frames Covered by the Data Differed
paragraphs: Subsection 223(c) of SBREFA required agencies to submit their reports by  March 1998 but did not specify the time frames that the agencies’  enforcement data should cover. As a result, the data that the agencies  provided varied in the dates covered. For example, MSHA’s data covered  the period from April 1, 1997, until December 31, 1997. FCC’s data covered  the period from June 1996 to January 1998. EPA indicated that its data was  “through fiscal year 1997” but did not indicate the starting point for the  data.
section_title: Most Agencies Still Could Not Provide More Recent Data in the Format Requested
paragraphs: Given the difficulty in using most of the data that the agencies provided in  their 1998 reports, we asked each agency to provide enforcement data for  each fiscal year since SBREFA’s enactment (i.e., 1997, 1998, 1999, and  2000). Specifically, we asked the agencies to identify the number of civil  penalty enforcement actions that they had initiated in each year, the  number initiated against small entities, and how many of the enforcement  actions against small entities did and did not result in a waiver or a penalty  reduction. We also asked the agencies to provide data on the dollar amount  of the civil penalties against small entities that were waived or reduced.  SBREFA does not currently require agencies to maintain this information.
MSHA was the only one of the five selected agencies that provided the  enforcement data that we requested. (See table 2.) The data indicate that  the percentage of enforcement actions against small entities that received  some type of penalty relief ranged from about 38 percent in fiscal year 1997  to about 43 percent in fiscal year 1999. The average amount of penalty per  enforcement action ranged from about $233 (1997) to about $274 (1999).  MSHA officials said that the agency rarely provides full waivers of civil  penalties because the agency generally requires a minimal $55 fine for each  enforcement action initiated that involves a minor violation that is abated  in a timely manner.
The other agencies varied in their ability to provide relevant data. OSHA  provided data on the number of inspections involving small entities, not the  number of enforcement actions. (See table 3.) OSHA officials said that their  database is structured in terms of inspections, not enforcement actions,  and that the database does not reflect how many enforcement actions  occurred during each inspection.
The data that OSHA provided indicated that every inspection involving a  small entity that resulted in a proposed penalty also resulted in a penalty  reduction. As previously noted, OSHA automatically applies its penalty  relief criteria to proposed penalties. Small entities can receive the largest  penalty reductions, and the smaller the entity the larger the reduction.  During each of the last 3 fiscal years (1998 through 2000), OSHA provided  small entities with more than $120 million in penalty relief, and in each year  more than 80 percent of the reductions provided to small entities were  based solely on the size of the entities.
The data that EPA provided to us reflected enforcement under the three  elements of its section 223 programs, not all enforcement actions in the  agency. Also, the data provided were inconsistent, incomplete, and not in  the format that we requested. For example, for fiscal year 1997, EPA said  the following:   Sixty-one small businesses disclosed violations under the agency’s audit  policy, 19 received some form of penalty relief, and 36 cases were still  “under consideration” for relief at the end of the fiscal year. It was not  clear how the remaining six cases were resolved, and EPA did not  indicate the amount of penalty relief that was provided.
Twelve small businesses disclosed violations under the agency’s small  business policy, and 8 received penalty relief after the fiscal year had  ended. However, EPA did not indicate how the remaining four cases  were resolved or the amount of penalty relief that was provided.
Seventy-six small communities “utilized” the agency’s small community  policy, but EPA did not indicate whether all of the communities received  relief and, if so, the amount of relief provided.
The data that EPA provided for the other fiscal years were even less  complete. For example, EPA said that 76 facilities disclosed violations  under the small business policy in fiscal years 1998 and 1999, and that “all  businesses that qualified for relief were granted a 100% waiver of the gravity-based penalty.” However, EPA did not indicate how many of the 76  facilities qualified for relief.
Neither FCC nor INS could provide us with any data on civil penalty  enforcement actions against small entities. Officials in both agencies told  us that because their agencies do not provide special civil penalty relief  based on the size of the regulated entity, they do not keep data on  enforcement actions by size of entity.
section_title: Most Agencies Could Not Identify Paperwork-Related Enforcement Actions Against Small Entities
paragraphs: We also asked agencies to determine whether any of the enforcement  actions during this period that did not result in penalty relief involved  paperwork requirements. SBREFA does not require agencies to maintain  this information. Because MSHA was the only agency that could identify  the number of enforcement actions against small entities that did not result  in some type of penalty relief, it was also the only agency that could  identify the number of such actions that involved a paperwork  requirements. (See table 4.)
The MSHA data indicated that, in each year, less than 9 percent of the  enforcement actions without some type of penalty reduction involved  paperwork requirements. MSHA said that most of these actions imposed  single $55 fines that were required by regulation or involved more serious  violations that could have an impact on the health and safety of employees.  MSHA provided the following examples of what they considered to be  “serious” paperwork-related violations:  MSHA regulations require that all electrical equipment must be  frequently examined, tested, and properly maintained by a qualified  person to ensure safe operating conditions, and that a record of such  examinations must be kept and made available to miners and  representatives of the Secretary of Labor. Failure to keep such records,  although technically a “paperwork” violation, may represent failure to  maintain the equipment in the specified manner.
MSHA regulations also require that self-propelled mobile equipment to  be used during a shift must be inspected before being placed in  operation on that shift. Any defects on the equipment that are not  corrected immediately must be reported to and recorded by the mine  operator. Therefore, an MSHA inspection that discovers defects in self- propelled equipment may also be recorded as a paperwork-related  violation.
FCC and INS officials said they could not provide data on enforcement  actions involving small entities because their agencies do not distinguish  between large and small entities. FCC provided information on certain  enforcement actions involving paperwork requirements, but the data were  for all enforcement actions, not just those against small entities. EPA  officials said the agency does not maintain data on paperwork-related  enforcement actions. OSHA officials said that there are no enforcement  actions involving small entities that do not receive some form of penalty  relief under the agency’s section 223 policy. Therefore, there are no  examples of such actions that involve paperwork requirements.
section_title: Conclusions
paragraphs: Congress provided agencies with substantial discretion in developing their  section 223 civil penalty relief policies. Not surprisingly, the agencies used  that discretion and developed policies that vary substantially. For example,  some of the agencies’ policies cover all civil penalty enforcement actions  involving small entities, but other policies cover only some such actions.  Some of the policies apply only to small entities or provide them with extra  civil penalty relief, and other policies provide small entities with no greater  relief than large entities. The agencies also varied in how key terms were  defined and in their policies’ conditions and exclusions. This variability  notwithstanding, all of the agencies’ policies and programs that we  reviewed were within the discretion afforded to them by SBREFA.  Agencies were allowed to limit the scope of their programs to only a  portion of their enforcement actions against small entities, and they could  decide not to give small entities any additional civil penalty relief. Agencies  were also allowed to establish whatever conditions or exclusions they  wanted for participation in their programs, subject to the requirements and  limitations in other statutes.
Agencies’ differing missions and operating environments may legitimately  require differences in the agencies’ civil penalty relief policies. However,  some elements of agencies’ policies can be strengthened and made more  consistent without impinging on agencies’ flexibility. For example, if  Congress wants agencies’ section 223 policies to be more inclusive, it could  require that those policies cover all instances in which small entities can  receive civil monetary penalties. Also, if Congress wants small entities to  receive more civil penalty relief than is provided to larger entities (unless,  of course, larger entities receive a complete penalty waiver), it could  require that agencies’ policies or programs provide extra reductions for  small entities. These kinds of changes would improve small entities’  opportunities to receive relief from federal civil monetary penalties.  However, Congress could still permit the agencies’ policies to delineate  relevant conditions and exclusions under which the penalty relief would be  authorized without allowing the conditions and exclusions to be so  restrictive that they unduly limit the scope of the policies themselves. For  example, agencies could continue to exclude small entities that have been  subject to multiple enforcement actions, exclude violations involving  willful or criminal conduct, and require that entities correct the violations  within a reasonable period.
Even if agencies made these changes to their section 223 policies, Congress  would still be unable to oversee the implementation of those policies  without data. Agencies are not currently required to collect data on the  implementation of their civil penalty policies under section 223; the statute  imposed a one-time reporting requirement that expired in 1998, and some  of the agencies failed to satisfy this requirement. To facilitate congressional  oversight, Congress could require agencies to maintain certain types of  implementation data, such as (1) the number of enforcement actions in  which civil penalties were proposed, (2) the number of those actions  involving small entities, (3) the number of those actions in which small  entities received some type of penalty relief, and (4) the dollar amount of  the relief provided. By maintaining such data, agencies would be able to  make the data available when Congress exercises its oversight duties in  this area. The data would also help the agencies themselves understand  how their section 223 policies are operating. When providing such data to  Congress, agencies should clearly define key terms such as “small entity”  and “penalty reduction” so that Congress can understand whether  variations in agencies’ data are caused by differences in the  implementation of agencies’ section 223 programs or other factors.
section_title: Matters for Congressional Consideration
paragraphs: If Congress wishes to strengthen civil penalty relief for small entities, it  should consider amending section 223 of SBREFA to require that agencies’  policies or programs (including relevant conditions and exclusions) cover  all of the agencies’ civil penalty enforcement actions involving small  entities and provide small entities with more penalty relief than other  similarly situated entities. Also, to facilitate congressional oversight in this  area, Congress should consider amending the act to require agencies to  maintain data by fiscal year or some other time period on such factors as  the number of enforcement actions involving all small entities, the number  of enforcement actions that resulted in penalty reductions, and the amount  of penalty relief provided. Any such data provided to Congress should  clearly indicate how the agency defines key terms such as “penalty  reduction” and “small entities.”
section_title: Agency Comments and Our Evaluation
paragraphs: On January 4, 2001, we sent a draft of this report to the Secretary of Labor,  the Attorney General, the Chairman of the FCC, and the Administrator of  EPA for their review and comment. Department of Justice officials said  they had no comments on the draft report. On January 16 and 18, 2001, FCC  and DOL officials told us they had no comments on the matters for  congressional consideration but provided several suggestions to clarify  particular sections of the report, which we included as appropriate. On  January 24, 2001, we met with the Director of EPA’s Office of Regulatory  Enforcement and the Director of the agency’s Office of Compliance to  discuss the draft report. During the meeting, the Directors provided several  suggestions to clarify certain sections of the report. For example, they  requested that the report clearly state that SBREFA does not currently  require agencies to maintain the information that we requested in relation  to our second and third objectives. They also said the report should  indicate that EPA views information collection requirements as the  foundation of many health and safety statutes, and that violations of those  requirements should not automatically be treated as minor infractions  meriting a waiver of civil penalties. We made these and other changes to  the draft report, and provided the Directors with a revised draft reflecting  the changes made.
On January 26, 2001, the Directors of EPA’s Offices of Regulatory  Enforcement and Compliance provided written comments on the revised  draft report, which are reproduced in appendix I. The Directors said they  found our evaluation helpful and were taking steps to implement some of  the report’s “recommendations.” For example, the Directors said they were  planning to begin collecting data on the number of small businesses taking  advantage of EPA’s audit policy. However, they also provided several  “overarching comments” regarding the report. First, they said that  “istinguishing between requirements that have an information collection  request and those that do not is an inaccurate litmus test for differentiating  ‘major’ and ‘minor’ violations.” Second, they said it is not clear that  penalties issued against small businesses in EPA enforcement actions are a  “significant concern,” noting that EPA reduces penalties below the  statutory maximums, settles most cases below the initial penalty offers,  and is required by the agency’s statutes and penalty policies to consider  ability to pay, “which enables EPA to take small business concerns into  account in its enforcement actions.” The Directors also said EPA believes  that penalty incentives should reward those who make voluntary efforts to  comply with regulatory requirements, and that agencies implementing  SBREFA programs should continue to consider the penalty factors that  Congress has established (e.g., recovery of any economic benefit of  noncompliance).
We did not indicate in our draft report that violations involving an  information collection were, in any sense, “minor” violations. In fact, as  previously indicated, we added a sentence to the revised draft that the  Directors reviewed reflecting EPA’s and other agencies’ concerns about this  issue in relation to legislation that Congress had considered. Regarding the  Directors’ second point, it is not clear how EPA can determine whether  penalties issued against small entities are a significant concern without the  enforcement data that the Directors said the agency does not possess or  that they described as “inadequate.” Also, an entity’s “ability to pay” may be  unrelated to whether that entity is considered “small” for purposes of  SBREFA. Therefore, taking into account a business’ ability to pay does not  ensure that small business concerns are taken into account. Regarding the  Directors’ last points, we noted in the conclusion of our draft report that  even if agencies’ policies were required to provide extra reductions for  small entities, agencies would still be free to impose other conditions and  exclusions on the receipt of penalty relief. Those factors could include,  among other things, consideration of an organization’s voluntary efforts to  comply and congressionally established factors.
The EPA Directors also provided several “technical” comments on the draft  report. In several of these comments, the Directors stated the agency’s  position on various issues but did not recommend changes to the draft  report. For example, in one such comment, they emphasized that EPA  offers penalty relief to small entities both through its section 223 policies  and through its policies implementing environmental statutes, and  indicated that EPA views “ability to pay” separate and distinct from “ability  to continue in business.” In other comments, the Directors noted that EPA  data tracking for the agency’s voluntary disclosure policies was  “inadequate” (although improvements were being made), and that other  data that we requested on the agency’s small communities policy did not  exist.
However, in other technical comments the Directors suggested changes to  the draft report. For example, they said the report should indicate that an  enforcement program needs to meet many competing goals, and said  addressing the recommendations in the draft report may create tensions  with our previous recommendations regarding equitable treatment for comparable violations. Although we agree conceptually that an agency’s  enforcement program may face competing goals, we do not believe that  providing penalty relief for small entities and maintaining data on the  amount of relief provided are inconsistent with a strong civil penalty  program. Furthermore, we do not believe that the matters for  congressional consideration in this report conflict with our previous  recommendations. In the report that the Directors cited, we listed a  number of factors that an agency could appropriately consider when  determining the penalties to be imposed (e.g., the severity of the violation  and the degree of economic benefit obtained). With the enactment of  section 223 of SBREFA (less than 2 weeks after the publication of our  report), the size of the entity involved in the violation became yet another  factor that agencies could legitimately consider when determining  equitable penalty amounts.
In another comment, the Directors said the number of small entities  described as having received relief in EPA’s 1998 report also represented  the number of enforcement actions taken during the reporting period.  Therefore, they said the information that subsection 223(c) of SBREFA  required be included in the agency’s report was, in fact, included. However,  readers of EPA’s 1998 report were not provided this information at the time  that the report was issued. Therefore, readers had no way of knowing  whether the information that EPA provided (on the number of small  entities receiving penalty relief) was consistent with the statutory  requirement (number of enforcement actions resulting in penalty relief). In  the revised draft report that the Directors reviewed, we had already noted  that, in commenting on this report, EPA said the number of small entities  was equivalent to the number of enforcement actions taken. Therefore, no  changes were made to the final report.
As arranged with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days after the  date of this report. At that time, we will send copies of this report to  Senator Richard J. Durbin, Ranking Member of the Subcommittee; the  Honorable Elaine Chao, Secretary of Labor; the Honorable John Ashcroft,  U.S. Attorney General; the Honorable Michael K. Powell, Chairman of the  Federal Communications Commission; and the Honorable Christine Todd  Whitman, Administrator of the Environmental Protection Agency. We will  also make copies available to others on request.
If you have any questions regarding this report, please contact me or Curtis  Copeland on (202) 512-6806. Key contributors to this assignment were John  Tavares and Aaron Shiffrin.
section_title: Comments From the Environmental Protection Agency
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