Restore public trust, audit the sanitation district

December 9, 2014
Debbie Peterson

Debbie Peterson


San Luis Obispo County Grand Jury said, “Board and district exposed to financial, legal, and public trust issues.” Reason enough for an operations audit.

In 2010, a major sewage spill in Oceano originated at the Arroyo Grande, Grover Beach, Oceano and Pismo Beach sewer plant, the South San Luis Obispo County Sanitation District (SSLOCSD). This was just one of a decade of problems at the district. The spill was the culmination of what the grand jury in 2011 called “bad management.” The district board at the time said the grand jury report was “offensive.”

The first sign of problems at the district was in 2005, when the 16-year trend of funding reserves every year stopped. Thereafter the plant lost $500,000 to $2,000,000 a year until 2013 when the board restructured the management team, taking the finances back to a positive balance.

Not only did the finances drift from 2005 onward, but around 2008 lawsuits started appearing, associated with equipment failures, high employee turnover, the spill, and insurance.

Following the spill, from 2010 through 2011 there were many investigations. The first, considered “inept” by the grand jury was followed by a modified county audit and a peer review. These investigations made several recommendations to the board. Some were implemented, most were disputed.

The losses of 2005 through 2012 gobbled up reserves that some say were $12 million or more. Obscure financial reports make it difficult to determine the amount. If the district had remained on course, annually contributing to reserves, it would now have around $16 million available to upgrade the plant. Instead, it barely survived and must now seek grants, rate increases or bonds for needed improvements.

A good chunk of the reserves went to bungled capital projects. The major recipients of those funds were John Wallace, the Wallace Group and the district’s legal advisers, who all benefited financially by managing the ongoing mechanical and legal problems.

When the board restructured the district in 2013 it included an operational audit in the request for proposal (RFP) for management. It is standard practice in well run organizations to carry out an operational or ‘forensic’ audits during a restructuring, or sale or as procedural best practices. The district board sought efficiencies from a top to bottom, in-depth review of current and historic finances, systems and procedures, but subsequently refused to implement the audit. Without the audit the restructure is incomplete.

A truly independent audit by an outside expert is the only responsible action the board can take as a steward of ratepayer resources. A thorough audit will turn up any further improvements the district can make. It will bring financial responsibility and closure to the cycle of the past 10 years. It will allow the district to go forward to upgrade the plant and reassure the public of the district’s commitment to fiduciary responsibility. It would include an engineering review for single point vulnerabilities to guard against future spills.

The excerpted RFP below illustrates the scope of the operational audit requested. At the time it was presented I had researched several consultants, working out a viable proposal in which the consultant would work in $5,000 two-week increments, thus allaying the board’s assertions that it would be too expensive.

Independent of the influence or involvement of the Board/the District Administrator and/or the Wallace Group the consultant shall:

• Complete an in-depth review of the District finances, including income and expenses within all accounts such as, but not limited to operations, maintenance, capital projects, reserve and revolving funds.

• Review of policies, practices, procedures, equipment and plant to rule out and/or prevent fraud, waste or abuse.

• Evaluate current and a minimum of five years of purchasing practices and procedures, including invoicing by district administrator, engineering service providers, legal counsel and other service providers and contractors.

• Evaluate plant, staff, operations and materials costs as compared to other waste water plants and advise as to working conditions, work load and typical costs.

• Suggest operational efficiencies, cost saving opportunities, best practices and appropriate controls.

• Advise on setting up systems, practices and procedures that provide financial and operational information that the Board needs for responsible oversight, accounting comparison of budgets versus expenses for the last five fiscal years and relevant analysis of all district accounts for board and management use.

Team: Investigative Accountant with equivalent knowledge and experience as a CPA or forensic accountant, a seasoned accountant with experience in or with “Big Five” accounting firms, investigative experience, experience in government auditing and familiarity with current industry technologies.

In 2014, the plant is under excellent management and functioning effectively. Recent elections have brought changes to the board. Now is the time to complete the turnaround. Management cannot succeed merely by compliance with a system of internal controls. The turnaround happens from the top, addressing any matters that may be unsound.

A good forensic or operational audit will establish clear lines of accountability for controls, reduce the risk of fraud and create a more reliable, effective organization. If truly independent, it will put to rest or address lingering public concerns and allegations of malfeasance. For the sanitation district it would also help to re-establish credibility and public confidence, allowing the board to move forward with critical health and safety improvements.

A forensic audit will be considered at the next district board meeting on Dec. 17 at 6 p.m. Members of the public may attend and speak during public comment on the first and third Wednesdays of the month at the Arroyo Grande City Hall.

Debbie Peterson was the mayor of Grover Beach from 2012 through 2014 and a sanitation district board member.



Health & Safety Code 4730 requires the presiding officer from each community to serve as the representative from their organization. Tonight at 6:30pm the Oceano CSD is slated to change their Board make up, likely moving Mary Lucey up from VP to Pres. This would make her the representative from OCSD to serve on SSLOCSD.

At last weeks SSLOCSD meeting Lucey attended as an audience member. She made public comment near the end of the meeting (53:37 minutes into the audio tape available on the website where she suggested an audit is going back to “regurgitate and beat people down” and didn’t “see the point”. She also said, “I get very nervous when I hear ‘forensic audit’.”

I invite you to attend the Oceano CSD meeting and let your concerns be known as they relate to representation on the San Dist board.

Lessons from an audit can be very valuable as the SSLOCSD goes forward.

Learn from the past and vow never to repeat it.


Jim Hill and John Shoals are new board members for the South San Luis Obispo County Sanitation District (SD), and Mary Lucey will likely join them to form a completely new board. This seems an ideal time to look at the situation at the SD and determine how to move forward.

Jim Hill, Debbie Peterson and others are asking for a forensic audit as a means of evaluating the situation. It seems to me the term “forensic audit” is being used in a broader sense as a proxy for some focused means of looking at the available facts regarding the SD’s operational and financial status. A forensic audit is actually normally limited to examining the financial information of a firm to evaluate potential criminal or negligent acts, or to evaluate a financial claim. A forensic auditor isn’t qualified to do the full scope of what Ms. Peterson has outlined. While some form of forensic audit may be needed it may be too narrow in scope by itself.

However the new board decides to proceed, the first question they should ask is “ If we are going to spend the SD customers money to do this, how does it benefit them?”

It could be very emotionally gratifying to have a forensic audit that lets us wallow in even more evidence that Wallace plundered the SD and Ferrara and Nicholls enabled him to do it. Then we could keep saying “I told you so”. But what is that going to accomplish? We already know the grand jury report pointed out the potential for abuse, and Ferrara, Nicholls and Seitz responded by saying the report “was largely inaccurate”. Then after Debbie Peterson replaced Nicholls on the board and forced Wallace to “retire” we saw the SD’s costs drop dramatically. What Wallace did and Ferrara and Nicholls enabled is already crystal clear. Now Nicholls is gone, Ferrara is gone, and Wallace is gone. Every payment made to Wallace was approved by the SD board. So unless Wallace actually submitted false billings for work not done it is not clear what a conventional forensic audit would accomplish.

Something that should be of high concern to the new board is that the SD has one of the oldest, if not the oldest wastewater facility in the county. What condition is the plant in, and what would it take to keep it operational or to replace it? To the extent this hasn’t been done already, it must be done now. This evaluation should be a major issue in dealing with the state water board (WB) regarding the fine for the Oceano incident.

And that is the other big issue and priority for the new board, how to deal with the WB regarding the pending $1.1 million fine. Obviously something has been going on behind the scenes for a long time. Recently the SD’s board has taken an adversarial position and has filed legal action against the state WB.

On the surface, this adversarial posture doesn’t make much sense. Instead of a lawsuit the board should be owning up to the problems that occurred and showing they have since been doing all the things necessary to prevent future mishaps. This might include some kind of additional audit or review as part of the new process. When Ms. Peterson and Matt Guerrero forced Wallace out that should have been a huge step in convincing the WB that the board was no longer asleep at the wheel.

However, to make real progress in negotiations it is sometimes necessary to keep negotiations confidential rather than on the front page. As much as we’d like to know all of the details the prudent thing at present might be to suspend judgment and trust Jim Hill and a new board to assess the situation and act accordingly. This includes keeping the public as informed as ongoing negotiations permit. The new board certainly knows they are going to be closely watched.

Mike Byrd

Toadstomper, well written, thoughtful and informative. Thank you. There may very well be a variety of terms being used to address how we get to where we need to go but I believe the goal is pretty clear. We need to understand what went on beginning in 2006 and how Mr. Wallace and his enablers were able to drive South San to the brink of bankruptcy. There are two very important reasons this has to be done.

First and most obvious is, only by fully understanding the extent and means of this plunder can future boards learn from past mistakes and avoid a repetition. We all spend our lives learning from our mistakes but it is essential that we understand our mistakes in order to do so.

Secondly and perhaps most importantly, Mr. Wallace was careful to indemnify himself from any accountability. We, the ratepayers, have been left with an empty bank account, legal bills and a looming crippling fine that could have been easily avoided. Mr. Wallace simply skipped away with all the money plus all the fees earned by fighting the water quality control board instead of accepting their generous settlement. If any confirmation of wrongdoing or gross mismanagement results from the investigation that might void his indemnity and hold him accountable for the disaster he caused.

So I say, call it what you will but it is imperative that the investigation move forward with all haste.


QUOTING TOADSTOMPER: “However, to make real progress in negotiations it is sometimes necessary to keep negotiations confidential rather than on the front page. As much as we’d like to know all of the details the prudent thing at present might be to suspend judgment and trust Jim Hill and a new board to assess the situation and act accordingly. This includes keeping the public as informed as ongoing negotiations permit. The new board certainly knows they are going to be closely watched.”


IMO, that is complete and utter bull$hit.

Sorry. I voted for transparency and accountability, not more backroom deals.

The SSLOCSD is in the mess it is because of the crony deals allowed to be made under the cover of darkness.

The reality is, as it stands now and after all that has been done, we, the ratepayers, still don’t know why John Wallace has been given free rein do do whatever he effing wanted to, regardless of the costs to the ratepayers, the community and the environment.

We simply must have transparency and accountability from the SSLOCSD BOD and its TRUE LEADER, John Wallace. As long as John Wallace is involved, in any way, with the SSLOCSD, we cannot trust the SSLOCSD BOD or its representatives.

The most important “doing the right thing” action the BOD must take is to get rid of Wallace and his companies. We cannot go forward as long as John Wallace is still involved with the SSLOCSD.

If the BOD doesn’t immediately grow a spine, get off its knees and drop-kick Wallace from any association with the SSLOCSD, there is no way we can trust the BOD to do the right thing.


It may not actually be necessary to be rude in order to make a point Some of us consider it a virtue to listen respectfully to opinions other than our own.

Having said that, you apparently know something I don’t. How is Wallace still involved with SSLOCSD?


What negotiations are you referring to? To what extent does confidentially play a role when virtually every action and decision involves OUR tax dollars?

“Confidentiality” has brought us to where we are today. As voters WE vowed to excise that cancerous modus operandi from our governance.


I believe there may be citizens who would like to speak directly to either Debbie, Jim or Mike and do not wish this to take place during official time, or utilizing a municipal email. Would any of these three individuals care to provide contact information via email or phone number perhaps?

debbie peterson

You can reach me at 550-4490.

debbie peterson

I just heard from Jim Hill. He isn’t registered to comment on this site, but gave me his phone number to include here for folks who may wish to talk with him. It is 481-5654.


I do believe that one of the reasons Ferrara has acted to oddly is that he’s afraid of going to prison.


You think Ferrara has acted oddly?

Yes, once again… why was Big Tony willing to lose ( now EVERYTHING!) to protect Adams?

The skeletons are mighty at City Hall and I’m sure smellier at the San district.


Indeed, has Adams yet left the GM position?

I fear he is going to turn out to be the loser boyfriend that, no matter what you do, you just can’t seem to convince him to go away.

As the old song goes, “How can I love you when you won’t go away?”


It’s amazing to think — important op ed pieces like were simply not published before the advent of CCN. The people had absolutely no voice. While the Tribune wasn’t quite a worthless as it is today, it has always taken care of it’s own.

Mike Byrd

Mayor Peterson has just accomplished what has alluded many – a concise, understandable explanation of an incredibly complicated issue. Kudos, Debbie.

But it should be understood that this barely scratches the surface. There are so many, many layers which try to obscure the truth that the only hope of getting to the bottom of it is this audit. We ratepayers are on the hook for millions lost and millions yet to come.

At the very least we deserve to know who put us in this position and how. At best maybe those responsible can be held responsible for their actions. And anyone who tries to block the discovery of the truth should be banished from public office.


How that Ferrara has so much time on his hands, perhaps he will join us at the San District as a private ratepayer and be able to answer our questions. (NOT!)


I’d just as soon not see His OoompaLoompa-orange face anywhere, including the SSLOCSD.


Great op-ed, Ms. Peterson. It was a gruesome refresher course of the cronyfied back-room deals the likes of the prior BOD, John Wallace and ex-mayor Ferrara, as well as Jon Seitz, conspired to concoct, at the ratepayers’ expense.

Mitch C

It is sad that an individual who was one of three Board Members os the San District does not know that Pismo has their own sewer plant and is not part of the South County San District. I Don’t know you Debbie, so I have no axe to grind, but we need to leave the solutions to those who have an idea of what is going on … you are “retired” as mayor … Time to leave solutions to competent individuals.

debbie peterson

Yes, Pismo has their own sewer plant. However, they are served by the SSLOCSD. They contract with the District to transport their treated waste water to the outfall.



Well, nanny-nanny-poo-poo to you, Mitch C.


Debbie…..I’m sorry for taking shots at the wrong person…open apology. It just “seems” to the casual observer of the things I wrote about. Not saying it is fact but, I’m also seeing a clear pattern (Ferraro comes to mind) of the good ones being overran by the bad ones on these issues.

I’ve got great hope in the Hill gang and I’d sure like to see this OCSD tragedy turned around for the good of the citizenry.

debbie peterson

Thanks, Stunned. We’re on the same page.


One does not have to be a mayor to know when the SSLOCSD has screwed its ratepayers for years with its crony-capitalism approach, nor does one have to be a mayor and on the SSLOCSD board to be competent at what is going on for decades at the facility.

Using your reasoning–that someone who is not a mayor and on the SSLOCSD board of directors, all but a handful of people, including many ratepayers, would be “qualified” to offer an opinion.

I think Peterson has fabulously demonstrated she knows EXACTLY what is going on at SSLOCSD, and I appreciate her efforts to share her knowledge.


Pismo “SHARES” the new outfall with the District and Pismo transports their own effluent all the way the the District property where it joins with the District’s effluent at a tee.

And as for you Mitch, you left your mess at the County for someone else to figure out a solution to, so settle down.



I think Debbie referred to Pismo because it sends its treated waste water to the SCSD plant who disposes of it for them.


Mitch, I have no ax to grind, but I find you foolish.


Isn’t it odd to make all of these observations and suggestions to a newspaper when you’re on the board? This started in 2010 and now when the fingers are starting to point every single soul involved with this wants us to know they had nothing to do with the bad part.

Ever accuse a dog of something and see how guilty they look? Sure wish our sewer farmers were as easy to read!

Mr. Holly

I think one may have to look into this further prior to making conclusions. All of these local boards, commissions and councils usually require a majority vote. I have found that if someone wants to attempt to clean house or address the abuses within an organization it takes a majority vote to do that. I think one only has to take a look at Arroyo Grande and see what appears to have been where one person, Ferrara, was able to structure a position where he was able to control a majority vote to his liking.

This still occurs in some of our cities. The last election somewhat addressed this where many incumbents had close calls of staying on board with their good old boys. The voters are becoming more aware of the daily financial abuses that are going on and we the voters should support those who are trying to correct the abuses. ie: $1000 Christmas bonuses awarded as health benefits-come on.

You would have to ask why any district, city or county would not want an audit if there activities were being questioned. That answer is easy.

debbie peterson

I am not on the board. My term ended December 1, 2014.

I asked to agendize observations and suggestions when I joined the board in 2012. You can see the video and download the documents I presented at the February 6, 2013 board meeting by going to:

I wasn’t part of the problem. I was part of the solution.

Please come to the meeting and speak up if you have ongoing concerns.


Funny…MitchC criticizes Peterson for NOT being on the board and offering an opinion, and you, Stunned, criticize Peterson for being on the board.

And what, exactly, is wrong with a member of the BOD of any facility or organization being a whistleblower on criminal activities by others involved in the BOD and/or administering or running the facility?

Finally, the guilty slime here are the members of the BOD and its cronies (John Wallace and Jon Seitz, to be specific) who have conspired to use the SSLOCSD funds as their personal piggy-bank, allowing horrific conflicts of interest to exist which wasted so much of the ratepayers’ funding.


Oh yes and perhaps someone should be looking into crony Tony Ferrara’s little consulting company our of Arizona ” Arroyo Consulting”!

So sick of all of them: their greed, egos and favors!


The idea that Ferrara would be involved in any “consulting” business is ludicrous.

He is so out of touch with reality, I wonder that I don’t see him outside at night, baying at the moon for losing his position as mayor in AG.

Mike Byrd

Surferdude, please explain.


Our ousted Mayor (quitter!) is the CEO of his own consulting firm I have heard. I guess it is in Arizona.

I’ve heard it has something to do with wastewater. Hmmm..