Auditor rebuts John Wallace’s explanation
February 10, 2016
By KAREN VELIE
In response to former South County Sanitation District administrator John Wallace’s claim that a report by Knudson Investigations was flawed, Carl Knudson produced a Feb. 6 addendum to his original report. According to the addendum, auditors who find fraud or malfeasance are tasked with reporting the criminal activity, not confronting the suspect.
The sanitation district provides sewer services to about 38,000 customers in Arroyo Grande, Grover Beach and the unincorporated town of Oceano.
Last year, the sanitation district board hired Knudson to perform an audit of the district’s past management practices. The investigation followed a Grand Jury report and multiple allegations that Wallace had used his position as sanitation plant administer to drum up work for his private engineering firm, The Wallace Group.
After reading the Knudson’s report, the sanitation district board voted unanimously to send the 124 page account of mismanagement and malfeasance to the FBI, the San Luis Obispo District Attorney and the Attorney General.
“Finally, there was potential malfeasance in office in the solicitation of payments by Wallace for the Wallace Group while acting in the capacity as the district administrator for the district,” Knudson said. “Malfeasance is a public official’s performance of an act that is contrary to law.”
Two weeks later, both Wallace and his attorney Dennis Law asked the board not to send Knudson’s report on to law enforcement because it was flawed and inadequate. Specifically, that Knudson had not provided Wallace a chance to respond to the allegations of criminal malfeasance and that there were numerous errors in the report.
Last month, Knudsan said he had not spoken to Wallace about the criminal allegations as a matter of practice.
If an auditor finds evidence of fraud or suspected violations of law, the auditor is not to confront the suspect, according to the U.S. General Services Administration, Office of Inspector General and Office of Audits procurement fraud handbook.
“If the auditor believes the contractor is involved in fraudulent activity, under no circumstances should the auditor confront the contractor with the suspected fraud before providing notice to, and obtaining legal advice from, the Office of Counsel (JC) and discussing the situation with the Office of Investigations (JI),” the handbook says.
Wallace also claimed Knudson had not provided him enough time to respond to the allegations of mismanagement. Another claim Knudson said was untrue.
“Further, there is a misconception that I did not spend enough time with Mr. Wallace covering the issues identified in my report,” according to the addendum. “I spent more time with Mr. Wallace than with any other witness in my review. I spent three hours with him and his attorney, and countless hours on the telephone in response to Mr. Wallace’s concerns and questions.”
Knudson has worked for more than 40 years as a fraud investigator and has testified as a certified fraud expert in more than 50 federal and state trials and proceedings . Knudson was the IRS Agent who uncovered the Colombian cartels and the Oliver North fiasco in the 80’s, and more recently was the ENRON fraud investigator.
On Feb. 4, the staff at the sanitation district sent a redacted copy of Knudson’s report the the FBI, the San Luis Obispo District Attorney and the Attorney General.
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