Sanitation district wiped away records, audit finds

August 18, 2015
John Wallace

John Wallace


Four and a half years of accounting data were wiped away from South San Luis Obispo County Sanitation District computers under the leadership of John Wallace, a former IRS investigator alleges.

In May, the sanitation district board hired Carl Knudson,  a former special agent who investigated city government malfeasance, to pursue a financial and managerial audit of the district under Wallace’s management. Last week, Knudson released his initial findings in a letter to District Manager Richard Sweet.

Knudson, whose bio also includes stints with Naval Intelligence and the CIA, did not divulge any spending anomalies in his initial report. But, he stated his team has reviewed and examined a number of vendor files pertaining to alleged purchasing irregularities.

Thus far, the audit has uncovered a pattern of records disappearing or being destroyed. In addition, Wallace appears to be obstructing the audit, according to Knudson’s initial report.

Knudson released an estimate that the sanitation district paid Wallace and his engineering firm, the Wallace Group, more than $5 million from 2004 through 2013. Until he resigned as plant administrator in 2013,  Wallace and the Wallace Group were billing the sanitation district $50,000 to $80,000 a month for a variety of services.

Based on available evidence, Knudson determined the sanitation district had paid Wallace and the Wallace Group $3.4 million from July 2008 to June 2013. Digital account records of the previous 4.5 years were wiped away, the investigator stated.

“The computerized accounting for the years 2004 to July 2008 were not available and had been wiped clean when the plant switched to QuickBooks,” Knudson wrote.

Knudson’s letter also alleges the Wallace Group has purged physical copies of plant records. While he served as plant administrator, Wallace kept many sanitation district files at the Wallace Group office in San Luis Obispo.sewer

“We have learned that some records stored at the Wallace Group were ‘purged,’ but we don’t know what records were ‘purged’ since Wallace didn’t provide a list,” Knudson wrote.

So far, Knudson’s team has examined 56 boxes of plant records provided by Wallace, according to the progress report. Some of the records in the boxes were confidential personnel files which contained grievances filed against Wallace by a number of plant employees, Knudson stated.

Under Wallace’s administration, former staffers at the plant said the company from which Wallace purchased chlorine also provided top management perks, such as inclusion in a yearly boar hunting trip.

Knudson additionally stated he is having difficulty interviewing people associated with the Wallace Group.

Knudson said in the letter he requested to interview Heather Billing, a Wallace Group engineer. John Wallace responded to the request by saying she is on a sabbatical and may be back in September or October, Kundson stated.

“At this point, I’m not sure whether any of the Wallace people will be available,” Knudson wrote.

John Wallace did agree to be interviewed. But, he is including his attorney and an expert in government finances, according to Knudson’s letter.

Wallace also granted Knudson permission to interview Mike Seitz, who formerly served as the district’s attorney and worked as a lawyer for the Wallace Group.

For several years, the sanitation district board voted against conducting an audit. The board reversed its position in January and initially allotted $40,000 for an audit.

In Knudson’s progress report, the investigator requested an additional 150 hours, at the cost of $22,500, to complete the audit of the past 12 years of district fiances. Knudson said the complexity and scope of the audit have increased.

If the sanitation district board grants the request, the cost of the audit will increase from $55,000 to $77,500.

On Wednesday, the sanitation board will decide whether to grant Knudson the additional funds he is requesting. A district staff report states the request for additional funding is unexpected, but there are funds available.

In 2013, Wallace resigned as district general manager amid allegations of mismanagement. Since Wallace’s departure, the sanitation district’s wastewater treatment plant has been operating cleaner and at less than 50 percent of the prior cost. In particular, chemical costs have decreased from about $600,000 a year to $240,000 a year, district staff have said.

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  1. discloser says:

    mbiz, sounds like you don’t have even a basic understanding of the District. It is a separate public agency. The cities have no jurisdiction or authority over the District.

    (0) 0 Total Votes - 0 up - 0 down
  2. pasodowny says:

    I wish more electeds would weigh in and fight like Jim Hill. Obviously, polite discourse of disagreement and eventual acquiescence have not worked (hmmm… I wonder who I might be thinking of along the shiny south county coast…)

    It’s well past time to take a stand against the corrupt bullies of this county. They bully to hide the truth. Stand up to the bullies and shine light on the truth!

    Thank you Jim Hill!

    (1) 1 Total Votes - 1 up - 0 down
  3. hijinks2 says:

    Oops, no records, now you can’t prove anything! Unbelievable, it takes an entire organization to cover up the misconduct having been perpetrated against a public agency. It also takes corrupt local officials to finalize the deal.

    (14) 16 Total Votes - 15 up - 1 down
  4. Snoid says:

    Like Teflon John says in the New Times article, its all perfectly legal and approved by the board. This is true as Ferrara and Nichols who pencil whipped everything TJ put in front of them need to be held responsible. If ever there were politicians void of ethics,morals and one ounce of responsibility to their constituents, these scum bags take the cake.

    (14) 16 Total Votes - 15 up - 1 down
  5. Mitch C says:

    Mary, Jon Seitz was never, to my knowledge, the San District’s counsel. Mike Seitz represented the San District at least from 1997 until he resigned recently.

    (0) 2 Total Votes - 1 up - 1 down
  6. Cindy says:

    “In particular, chemical costs have decreased from about $600,000 a year to $240,000 a year, district staff have said.”

    It would appear that there was some handshaking going on between Wallace and the company that he was purchasing the chemicals from. Did they (the vendor) even deliver the chemicals that they billed the county for? It seems to me that an audit needs to be conducted on the company/vendors that appear to have provided an annual excess of chemicals to the tune of $360,000. a year. No doubt there were payoff’s in there, the question now is, who besides Wallace profited.

    This is disgusting and Wallace didn’t manage this without the help of “some of” his overseers.
    Somebody (maybe a few people) needs to pay us back and spend some time in jail.

    (27) 35 Total Votes - 31 up - 4 down
    • SamLouis says:

      You don’t know there were pay-offs.

      It might very well be the case that the current operator is more competent — either they now use different chemicals and/or they use them more effectively and/or they’re better at procurement negotiations.

      The fact is Knudson needs to be paid the funds to allow him and his crew to really drill down and get the full facts.

      (10) 22 Total Votes - 16 up - 6 down
    • MaryMalone says:

      Jon Seitz, until his death, was the sanitation district’s attorney, then it was passed on to Mikey Seitz, Jon Seitz’s less-competent and younger brother.

      The same can be said about other government agencies in our county currently contracting with the Seitz brothers, including the Nipomo Community Services District.

      (7) 13 Total Votes - 10 up - 3 down
  7. Does this sound like something the Grand Jury needs to investigate? County funds? Missing records?

    (31) 39 Total Votes - 35 up - 4 down
    • Scott says:

      I would say YES but only to a Federal Criminal Grand Jury, in SLO we have only a Civil Grand Jury who is hand picked by Judges, etc. they have NO Power at all, in other words it is required by the States Constitution for each county (58) in California. Our county is one who does NOT feel the need to have a Criminal Grand Jury who would have the powers to truly conduct Criminal investigations, indictments, subpoenas.

      But SLO county does not want one, my thoughts is because then the powers at be would be subject to investigations, misconduct probes and so much more. The current local GJ is powerless and are hand picked.

      As for the county and their shenanigans are all too common, I know the county has lied, committed perjury, altered evidence, falsified records and vehicles and so much more. Our County is one of the 58 in the state who have the worst record of ethics, integrity , lacks transparency and of all things commits crimes in the name of corruption cover ups. Only 4 other counties out of 58 have issues of this sort, yet SLO County is on the TOP of the list we are #1 for cover ups, perjured testimony, concealing misconduct etc….

      So if anything a Federal Criminal Grand Jury needs to investigate and FYI , several Federal Grand Juries have in fact by-passed the locals to indict criminals locally. SLO never knew what was going on.

      (27) 31 Total Votes - 29 up - 2 down
      • tstjbh says:

        Yeah! Why did SLO have their former DA run down to LA to see if it legal for Dan Dow to run against his boy anyway???? I wonder what kind of response he got??

        (4) 12 Total Votes - 8 up - 4 down
      • CentralcoastRN says:

        Is this something the voters can change?

        Wow. Just wow.

        (5) 9 Total Votes - 7 up - 2 down
    • kayaknut says:

      The Grand Jury?, the toothless and usually ignored by the government bodies it investigates Grand Jury? Why waste the time and energy. Until the Grand Jury has any power they are a “make the people feel good” group that has little value. Plus haven’t wasn’t there talk about them looking into the whole A.G. city manager fiasco and payoff and what happened there, nothing. Would only think having the D.A. look into it would be of any use, Come on new D.A. you talked a good talk during the election now is the time to live up to your word!! Anyway you slice it, what was done at the South San Luis Obispo County Sanitation District was wrong and likely criminal.

      (15) 19 Total Votes - 17 up - 2 down
      • Rich in MB says:

        Look Dan Dow is just part of the political machine…he’s not going to change anything, except maybe leaneancy on Prostitutes!!

        (5) 11 Total Votes - 8 up - 3 down
    • tstjbh says:

      Missing Data? Hmmm how unusual given the nature of Government NOT to be held accountable. Also given the Cuesta situation maybe they ought to start some courses on Good Accounting practices and then take them! Maybe they will learn why their accreditation is at stake??? Oh No that is not how education works??? Holding students is one thing but their administration…Oh my what a concept!!

      (12) 16 Total Votes - 14 up - 2 down

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