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Model Report

Calculating the Economic Savings from Noncompliance

Last Revision Date: 07/11/2011 View as PDF
General Information Back to Top
Model Abbreviated Name:

BEN
Model Extended Name:

Calculating the Economic Savings from Noncompliance
Model Overview/Abstract:
Since its development in 1984, EPA staff have used the BEN computer model extensively in the process of developing penalty figures for settlement purposes that reflect the economic benefit a violator has derived from delaying and/or avoiding compliance with environmental regulations. Calculating a violator's economic benefit using the BEN computer model is usually the first step in developing a civil penalty figure under the Agency's Policy on Civil Penalties (PT.1-1) February 16, 1984, and A Framework for Statute-Specific Approaches to Penalty Assessments (PT.1-2) February 16, 1984. The Agency developed the BEN computer model to assist in fulfilling one of the main goals of the Policy on Civil Penalties: recovery, at a minimum, of the economic benefit from noncompliance. Users of the model do not need any background in economics, financial analysis, or computers. Because the program contains standard values for many of the variables needed to calculate the economic benefit, BEN can be run with only a small number of user-provided inputs (mainly compliance costs, the noncompliance date, the compliance date and the estimated date the penalty will be paid). The program also allows the user to replace those standard values with user-specific information.
Keywords: Economic savings, economic benefit from noncompliance
Model Technical Contact Information:
Agency Contact:
Jonathan Libber
U.S. EPA
Office of Enforcement and Compliance Assurance (OECA)
Office of Civil Enforcement
Special Litigation and Projects Division (SLPD)
U.S. EPA/OECA (Mail Code: 2248-A)
(202) 564-6102
libber.jonathan@epa.gov

Jonathan Libber supervised the model's development and supervises its revision and upgrades. TCS Associates of Nashville, TN developed the first version of BEN in 1984. Since about 1988, Industrial Economics, Inc. of Cambridge, MA has revised and upgraded the model.

Model Homepage: http://www.epa.gov/compliance/civil/econmodels/index.html
Substantive Changes from Prior Version: We are going to add an entity type to the list of entities BEN does cover. This one will be for not-for-profit entities. We are also about to perform our annual update of the model’s financial values.
Plans for further model development: An annual update of the financial values.

User Information Back to Top
Technical Requirements
Computer Hardware
Able to run Windows 95 or more recent version of Windows
Compatible Operating Systems
Windows 95 or more recent version of Windows.
Other Software Required to Run the Model
Model has a GUI.
Download Information
BEN can be downloaded from the U.S. EPA, Office of Enforcement and Compliance Assurance (OECA), Office of Civil Enforcement (ORE), Special Litigation and Projects Division (SLPD).
Using the Model
Basic Model Inputs
The model requires the user to select what type of entity is being evaluated (e.g. C-Corporation, municipality, federal facility, etc.). Then the user must supply some key dates: when the violation started, the expected compliance date and the expected penalty payment date. Then the user must supply compliance cost figures. The rates in the model (inflation, the violator’s cost of money, and the tax rates) are supplied by the model. Although the user can supply his or her own violator specific information for those rates if he or she so desires.
Basic Model Outputs
The model will calculate the violator’s economic savings from violating the law.
User Support
User's Guide Available?
Documentation can be downloaded.

The help system provides an overview of the model and provides a comprehensive explanation of the model’s inputs, related model issues, and how to understand the model’s outputs. The help system can be read in advance and/or accessed at any time the model is being used be pressing the F1 key. Once accessed, the help system will open up the topic most relevant to the part of the model the user is currently working on.

Availability of User Support
Federal, State and local enforcement agency personnel can contact the Helpline at 888 326-6778. Private parties can contact Jonathan Libber of the EPA at (202) 564-6102
User Qualifications
User needs only moderate level of technical education and/or modeling experience. While users can self teach themselves using the on-line help system. A 3.5-hour training course is recommended to ensure that inputs are correct and that output is understood, this course is only available for Federal, State or local government personnel.

Model Science Back to Top
Problem Identification
The cornerstone of EPA’s penalty assessment program for the last 24 years has been that any civil penalty should always seek to recapture a violator’s economic gain from violating the law. The problem is that since the vast majority of our enforcement personnel do not have any finance on accounting knowledge, we need some simple approach that will allow them to quickly calculate what those savings are. The BEN model requires some minimal data regarding the date of noncompliance, the date of compliance, the date of penalty payment along with the cost of compliance. Then it uses that data to generate a reasonably accurate calculation the economic savings. The more challenging data (violator’s cost of money, the tax rates and inflations rates) are provided by the model by way of default parameters which can easily be replaced with violator specific information if the violator so requests.
Summary of Model Structure and Methods
The model first determines what it would have cost the violator to have complied on time, and then it compares it with the actual compliance costs incurred (or to be incurred) by the violator and discounts those costs back to the date compliance should have been achieved. BEN then compares those two figures, subtracts the delay compliance scenario costs from the costs of the on time case to determine economic savings as of the date noncompliance started. It then compounds that amount forward to penalty payment date at the violator’s discount/compound rate to yield the actual economic savings.
Model Evaluation
The model has been externally peer reviewed. The model developer, a contractor, is currently responsible for all QA/QC activity. A previous version of the model was peer reviewed twice (1988 and 1991) by leading academicians in the field of corporate finance. Contractor verified that calculations were similar to those an independent financial analyst might perform.

Key Limitations to Model Scope
The model evaluates the economic savings from delaying and avoiding pollution control costs. In these situations, all the firm’s profits were legally available if it would have complied with the law. But there are another group of benefits that occur when there is no way to achieve them except by violating the law. These used to be called benefit from illegal competitive advantage (ICA). But they are now referred to as Beyond BEN Benefit (BBB). There are four basic scenarios where this can happen: 1) violator produces an illegal product (e.g. DDT); or provides an illegal service (e.g. cut off catalytic converters from cars); 2) violator produces illegal output or throughput (e.g. operating the plant longer than the permit allows); 3) violator grabs an illegal market share (e.g. violator takes all the hazardous waste it is supposed to treat and instead dumps the barrels into a local river. Instead of keeping the extra money, it passes along all the savings to its customers and increases its share of the hazardous waste treatment business in its state from 10% to 25%); and 4) violator avoids the regulatory system in order to start operating sooner than legally possible (firm and its two competitors file for permits to lay cable to an island off the US mainland. While the government is reviewing the applications, the violator goes ahead and lays the cable. So when the permits finally get issues 6 months later, the violator has already layed the cable and signed up all the customers.).


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