Allegations of misdeeds dog the sewage plant

September 19, 2010


Accusations that the administrator of a sanitation district in San Luis Obispo County’s South Bay has been funneling thousands of dollars to a private engineering company he owns while concealing environmental violations has drawn the attention of local, state and federal regulatory agencies.

At the same time, the agency, the South County Sanitation District, which provides sewer services to Arroyo Grande, Grover Beach and the unincorporated town of Oceano, has come under fire for rate increases for customers and the dwindling of the district’s reserves from $12.2 million in 1998 to about $7 million today.

John Wallace is the chief administrator of the district, which provides services to about 38,000 customers. He is also owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo.

Critics contend plant supervisors have instructed staff to manipulate effluent release numbers in order to keep the public from knowing the aging plant is in need of a complete upgrade because Wallace is not qualified to supervise a modern sewage plant. And if the plant is rebuilt, Wallace would no longer have the ability to divert jobs to his consulting firm.

As suspicions grow among news reporters that something may be amiss at the district, the agency’s personnel may have violated California’s laws by not allowing public access to the minutes of public meetings and other documents that may shed light on the district’s inner workings.

Sanitation staffers routinely parry off requests for documents and explanations when asked by news reporters, including those from CalCoastNews.

Each community served by the district has a representative who sits on the district’s governing board. Wallace as chief administrator reports to the board.

In an unusual arrangement, the board placed Wallace at the helm in the mid 1980s. Critics contend Wallace has used the plant to provide a regular revenue stream to his private company.

Critics said the funneling of district funds took many forms.

Reserves during the past 12 years have been used for improvements at the plant, such as a new chlorine chamber, a new cogeneration unit and rehabilitation of both digesters which took over six years.  The Wallace Group was involved in every one of these projects with Wallace billing the district for his private company’s work.

And while the district’s reserves have shrunk, Wallace’s empire has grown with the purchase of eight properties in San Luis Obispo County under his personal name, according to property history reports.

In 1986, the governing board hired Wallace as a consultant in charge of the district’s day-to-day administrative, budgeting and engineering operations even though he is not technically an employee of district. He sits at the board table with the members of the three person governing board, writes the agendas and asks the board to approve expenditures, in a manner usually reserved for a public employee managing a government body.

Over time, Wallace has sent an increasing amount of the plant’s work load to his privately owned company and bills the district for these services.

Meanwhile, employees have reported environmental abuses to local and state water authorities, which confirmed the allegations made by a whistleblower Devina Douglas.

Devina Douglas

“It is incomprehensible to send the work over to Wallace Group staff when there are employees of the district willing and capable to do the work,” said Douglas, the district’s lab technician.

“As the district administrator, he is directing work to Wallace Group staff.”

Some employees of the Wallace Group charge more than $100 per hour to do the same jobs district employees, who are salaried government employees, say they can do at no additional costs to the residents of the district.

Employees claim that administrators and supervisors have been retaliating against those that attempt to clean up alleged wrongdoings.

After Douglas’ complaints to the water board resulted in the plant receiving a notice of violation that included allegations that the plant was only collecting samples when they knew the water would be the cleanest, she was let go. The district received a notice of violation which confirms Douglas’ allegations.

On Sept. 14, the district board voted 3-0 to eliminate Douglas’ lab technician position, and contract with an outside laboratory to handle the bulk of its wastewater testing in order to allegedly cut costs. Douglas contends plant officials are retaliating against her for informing regulators of mismanagement.

When asked about what employees should do when public agencies do not look into allegations like those raised at the South County Sanitation District, newly minted Lt. Gov. Abel Maldonado, who lives in nearby Santa Maria, said critics should call his office if they get no satisfaction from the district attorney’s office or the attorney general’s office.

“If (San Luis Obispo County Dist. Atty. Gerald Shea), who the people of the county elect, won’t look into allegations, go to the California Attorney General’s office,” he said. “And then if they don’t call my office and (go) all the way to the governor if they need to.”

District employees list dozens of specific instances where they claim Wallace has used the public agency to funnel funds into his privately owned Wallace Group consulting firm.

During the past four months, for example, the district has paid the Wallace Group approximately $80,000 a month for its services which comes from fees charged to the residents of the Grover Beach, Oceano and Arroyo Grande. Costs include more than $300 per hour for three Wallace employees to sit in on district board meetings, which take place twice a month.

Sewage plant employees at other county plants report the costs for engineering, administration and budgeting run substantially less than those paid out by the South County district.

For example, Paso Robles has similar sewage needs as those at the South County district.

However, Paso’s monthly costs for services assigned to Wallace are about $15,000 per month, much lower than the $80,000 monthly payments to the Wallace’s company, said Matt Thompson, Paso Robles city waste water division manager. (Paso Robles is beginning a major upgrade which will increase costs for a few years and then engineering and consulting expenses are expected to be much lower.)

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.”

Wallace received a $4,500 bid for a SCADA system, an alarm system that reports failures at the treatment plant. Instead of accepting the bid, Wallace elected to purchase a system that his Wallace Group employees could install and reconfigure.

Currently, that alarm system has been down, aside from three days, for more than two years while Wallace Group employees attempt to make the system work at a cost of more than $52,000 as of October, 2009, sources said.

Wallace said that the alarm system he selected to purchase does not compare to the one that cost $4,500. He said the system he is working to implement is superior.

And while supervisors from other plants said they agreed that there are many different types of alarm systems, three others who hold management positions at sewage plants in San Luis Obispo County said they were “shocked” that the South County alarm system has been down for two years.

They said that a specialist on the system would have been able to get it up and have it working in days.

Another area of contention is over claims that Wallace Group employees purposely dug a trench at the sewage plant to install new methane lines, which included tearing through asphalt, even though district staff said that there were electrical conduits they would run into if they dug there.

After running into the conduit lines, Wallace asked the district to cough up tens of thousand of dollars to dig another trench. The expenditure was approved.

“I think these facts (by critics) are untrue,” Wallace said.

Pressed about specific allegations, Wallace repeatedly says that he either did not remember or that the facts or allegations repeated against him are wrong.

District staffers also accuse plant supervisors of attempting to silence them by allowing plant employees to sell district equipment as their own property. For example, on Aug. 6, 2009, Trinidad Rodriquez sold scrap metal for $676 with the approval of his supervisor, Jeff Appleton.

“I hereby agree that I am the lawful owner of the above material and that it is free and clear of all encumbrances and that I have been paid in full,” the receipt says above Rodriquez’s signature.

Wallace said he informed staff last Monday that from now on, they have to put proceeds from the sale of any property belonging to the plant into the district’s general fund.

CalCoastNews also questioned Wallace about charging both the city of Arroyo Grande and the sanitation district for studies on recycling effluent for use in irrigation.

“I did a separate study for the city,” Wallace explained.

Arroyo Grande pays Wallace monthly fees for consulting that run from $12,000 to $33,000 per month.

For reporters trying to figure what’s really going on in the sanitation district, it’s been a struggle. The district routinely fails to follow parts of the Brown Act and the California Public Records Act, observers say.

For example, Michael Seitz, the attorney for the sanitation district, has instructed staff to not allow the public to view the minutes of meetings, older agendas or budgets without filing a written request.

Usually, members of the general public receive such documents from public agencies. But that doesn’t seem to be the case in the South County Sanitation District.

Seitz told CalCoastNews that under the California Public Records Act, he is given a ten-day period in which to make any documents available after he is provided with a written request.

It smacks of secrecy, said a state expert on the public’s right to access public meetings and documents.

“That is a flagrant disregard for the California Public Records Act in two respects,” said Terry Francke, general counsel of Californians Aware. “First, the ten-day period is not there to be a cushion, but to provide time if there is serious doubt if the records are public, and in these cases there is no doubt.

“Furthermore, a written request may not be demanded under the California Records Act. There must be no arbitrary delay or obstruction.”

Seitz’s wife, Sharon Seitz, heads the Wallace Group’s Human Resources department.

“It does not constitute a conflict of interest,” Seitz said.

Meanwhile, the district ordered an ‘independent investigation” into allegations the district had paid too much for a roof paint job and a chemical tank.

Tony Ferrara

And while Ferrara said that an outside firm did the independent investigation, Richard Thomas of Thomas Consulting was hired by Seitz and Ferrara, who helped with the investigation. In addition, the only staff and officials interviewed were plant superintendent Jeff Appleton and Wallace, according to the investigation results.

The employees accused of making the allegations were not interviewed by Thomas.

The investigation found no evidence in this particular case that Wallace was taking advantage of the district.

Employees have reported their concerns about manipulated release reports and alleged financial misdeeds to numerous agencies, including the Sheriff’s Department, the state and local water boards, the California Attorney General’s office and the San Luis Obispo County District Attorney’s office during the past year.

So far, critics claim, the district attorney’s office hasn’t looked into their allegations.


Mr.Perault is Grover Beach’s city manager.


Ferrara quotes as saying Wallace has saved the District money, and if they had to go out to bid for like services it would cost more. Id like to see when and were the last time they went out to bid for a job based on the jobs actual needs, and not an “bargain” hourly rate. Typical smokescreen, offer a cheap rate and drag it out for three times as long as it should take saving us nothing. Can somebody explain how it is annual budgets prepared by Wallace himself initally require $80K give or take, for the ENTIRE YEAR, yet he actually manages to charge that much in one month ? Talk about fiscal irresponsibility. No wonder why California is broke with the likes of this taking place on our dime.


I am a customer of this district. Whether or not the corruption accusations are true or false. One fact is screaming out loud. Under no circumstances should a district administrator, supervisor, or employee be allowed to conduct private business with the district or be associated in any way with any company doing business with the district under any circumstances.

It is my opinion that Mr. Wallace needs to resign or be terminated immediately and all district business with the Wallace group terminated immediately.

I have forwarded my opinion to The Grover Beach city manager and the council members and I may very well make a public statement at tomorrow nights council meeting.


I checked the city council agenda to discover that tomorrows council meeting has been canceled. I’ll have to wait until October 4th.


Yes you should but keep in mind Wallace and Perault are buddies, and thats a fact.


Who is Perault?


Bob Perault is the Grover Beach city manager.

I do not know him on a personal level. However, I think is the best and most honest city manager Grover Beach has ever had. I’ll give him the benefit of the doubt in regards to any friendship with Wallace.


Sources say the Board members were personally invited to the plant several times without Wallace present to butt in , and to hear and see the staff ‘s concerns over “projects gone wild” with a huge pricetag. Their request was not even acknowledged, but instead Wallace himself was questioned resulting in more of the same old thing, more misinformation from a man who rarely visits the plant he supposedly manages. Nice to know there’s such concerned public servants behind the controls serving in YOUR best interest.


The reserves went from $12.2 million to $7 million in the past 12 years. How high were they prior to 1998? Where are those funds?

I sure hope this does not mean we have to re-fund those reserves to do the needed upgrades!


I was wondering about that myself. God forbid that the taxpayers ever fund a reserve account or put any money ahead of ourselves. Some politician always spots it and starts figuring out how to clean us out.


Paso, a like-sized District, pays Wallace $15k, and SSLOCSD pays him $80k? What’s the difference here, folks? …Only that Wallace is in a position to self-direct work to Wallace Group.

…The fact that Wallace works for Ferrara with the city of AG…

…How is the District supposed to rely on legal advice from a man who needs to be careful not to upset the man who signs his wife’s paychecks…

What a nightmare. I can’t wait to see what shakes out once these morons start complying with the law and open up their books/records.

Great work, Ms. Veile.


Wait, something just dawned on me. The District claims it’s okay with this “John Wallace as Administrator and President of Wallace Group” thing, but that quote for Ferrara justifying the arrangement (stating that by using Wallace Group they don’t have to go out to bid for those services,) PROVES exactly why the set up IS a conflict of interest. Likely the most cost-effective way of handling these engineering cost would be to have an in-house engineer/project manager. How much would that cost? Maybe about $120,000/year? So why has John Wallace never made that recommendation? Easy, because then Wallace Group is out almost a million dollars a year.

How can the Board possibly think that Wallace is capable of acting in the best interests of the District when he is daily being put in a position to have to decide whether to pad his own pockets or save the District money? It takes a lot of $$$$ to pay the mortgages on 8 properties.

These people disgust me.

I hope all of you will join me in voting out this corruption the next time we get the chance!


Our DA is not much better than our sheriff. Bums and crooks, allowing the public to be ignored or ripped off.


Man, the list of misdeeds just keeps growing. It is just me, or does all this secrecy make them look worse?


You mean the ‘fragrant’ disregard? Is that Freudian misuse of flagrant, or are we dealing with somethin’ stinky at the sewage plant?