Grand Jury finds conflict of interest with Wallace Group
June 3, 2011
By KAREN VELIE
Accusations that the administrator of a sanitation district in San Luis Obispo County’s South Bay has been funneling millions of dollars to a private engineering company he owns without proper oversight, has been validated by a San Luis Obispo County Grand Jury report that found a conflict of interest.
The South County Sanitation District provides sewer services to about 38,000 customers in Arroyo Grande, Grover Beach and the unincorporated town of Oceano. John Wallace is the chief administrator of the district and also owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo.
The Grand Jury found that the district board failed to recognize this conflict of interest and to eliminate or, at minimum, mitigate the conflict of interest and that Wallace’s contract had never been competitively bid as required by law.
During the 2009/2010 fiscal year, the report says Wallace and the Wallace Group received $836,000 for administrative and engineering services. At a similar size plant in Paso Robles, those costs ran under $200,000 during the same period.
During a 2010 interview with CalCoastNews, Tony Ferrara, Arroyo Grande’s mayor and the head of the district’s governing board, said that paying Wallace for engineering consulting, budgeting and administration has saved the district money.
“If we had to go out to bid on every job, the costs would go up exponentially,” Ferrara said. “It is not uncommon for a small group to use an engineering consultant because we don’t have the resources to handle the breadth of professional services.”
The Grand Jury also noted that Michael Seitz, the attorney for the sanitation district, said he did not believe there was a conflict of interest in having Wallace serve as administrator while giving contracts to his private firm. Seitz had instructed staff to not allow the public to view the minutes of meetings, older agendas or budgets without filing a written request, a violation of law.
Seitz’s wife, Sharon Seitz, heads the Wallace Group’s Human Resources department.
“It does not constitute a conflict of interest,” Seitz said during a 2010 interview with CalCoastNews.
Both Seitz and Ferrara have boasted during district meetings that an investigation by Richard Thomas of Thomas Consulting proved allegations by an employee that the district was paying too much for outside jobs were false.
“This investigation found no reason to suspect that (Wallace) or his firm would take advantage of the district in billing unnecessary work,” Thomas concluded in his report.
The Grand Jury said Thomas’ report was “ineptly performed.”
The Grand Jury recommends that the district board consider hiring independent management and that it evaluate and compare organizational and operational alternatives for the district.
“The Grand Jury finds the district in a state of denial regarding the conflict of interest and, as a result, the district has taken no effective steps to mitigate the conflict,” the report says. “The Grand Jury concludes that, as a result, the board and the district are exposed to a number of financial, legal and public trust issues.”