Is it time for a forensic audit of the South County sanitation district?

March 31, 2014

By KAREN VELIE

Amid allegations of mismanagement, the South San Luis Obispo County Sanitation District’s former administrator stepped down, and less than a year later the plant is operating cleaner at less than 50 percent the cost, according to financial reports obtained from the district.

Under former administrator John Wallace, the district regularly exceeded its more than $6 million per year budget and ran at a deficit. Currently, the district is running at less than 50 percent of its budget, with overages being placed in a reserve account.

In addition, levels of fecal contamination remaining after treatment are dramatically lower than was the case under Wallace’s leadership, according to district officials.

For decades, Wallace acted as chief administrator of the district, and also as owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo. For years, the Wallace Group received between $50,000 and $80,000 a month from the district for a variety of engineering services. Even so, Wallace Group employees did not include a sanitation engineer, a district official confirmed.

In a 2010 exclusive, CalCoastNews detailed allegations that Wallace had been funneling thousands of dollars to his private engineering company, while concealing environmental violations. For example, Wallace would secure board approval to repair a piece of equipment, charge the district for the engineering through a payment made to the Wallace Group, and then not implement the repair. Several years later, the sequence would repeat, with Wallace Group again getting paid to do the engineering and the repairs never being done,  according to district staff.

Amid reports to state regulators from employees detailing mismanagement and alleged illegal acts, the district board terminated two employees who viewed themselves as whistle-blowers.

In Sept. 2010, the district board voted 3-0 to eliminate Devina Douglas’ lab technician position, after her complaints to the water board resulted in the plant receiving a notice of violation that included allegations that the plant discharged dirty water into the Pacific Ocean. Douglas says she refused to throw away a sample showing high levels of bacteria after being instructed to do so by plant management.

In Feb. 2011, the district terminated shift supervisor Scott Mascolo after he told state and local regulators that the district had violated laws. Prior to his termination, Mascolo reported incidents of suspected misuse of public funds and problems with the plant complying with safety and health requirements to several government agencies.

In June 2011, the San Luis Obispo County Grand Jury said that the district board failed to recognize the conflict of interest between Wallace’s administration of the district and his private engineering firm, and that Wallace’s contract had never been competitively bid as required by law. The three-person district board fired back a response saying that the Grand Jury’s allegations of district mismanagement “were largely inaccurate.”

The sanitation district, which serves the residents of the Oceano Community Service District, Arroyo Grande and Grover Beach, is governed by a three person board consisting of one representative from each community. In June 2011, the board included Arroyo Grande Mayor Tony Ferrara, Grover Beach Councilman Bil Nicolls and Oceano Community Services District Board Member Lori Angello.

Shortly after the board’s battle with the Grand Jury, Oceano Community Services District Board President Matt Guerrero replaced Angello and began to question expenditures, though little change occurred.

Then in Jan. 2013, Grover Beach Mayor Debbie Peterson replaced Nicolls on the board. Peterson poured over reports, examined accounting records and demanded action.

In Feb. 2013, at a closed session meeting set to discuss Wallace’s performance, Wallace announced plans to resign. Though he stepped down a few months later, he continued to have some influence over the district for several more months, distract staff said.

The last four months of Wallace’s full administration – Nov. 1, 2012 through Feb. 28, 2013 – the district had $1,313,167 in expenditures, according to district board packages. During the past four reported months – Oct. 1, 2013 through Jan. 31, 2014, – the district had expenditures of $782,385, a reduction in cost of $530,782, according to district board packages.

Nevertheless, the district owes the state a $1.1 million fine for a 2010 sewage spill determined to be the result of Wallace’s mismanagement. In addition, under Wallace, the reserve account — which previously held more than $10 million — was completely drawn down.

Following Wallace’s resignation, Peterson requested a forensic audit of past practices in an attempt to possibly reimburse ratepayers for misappropriated funds. However, Ferrara and Guerrero voted against Peterson’s proposal, and it failed 2-1.

 

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