Auditor rebuts John Wallace’s explanation

February 10, 2016

John WallaceEditor’s Note: Carl Knudson’s addendum to his report on the past management practices of John Wallace is at the bottom of this article.


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.


Addendum to Past Management Practices Review:

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Well, isn’t the standard practice and procedure to give them a big fat check and send them to another public sector account to rattle around in? that’s what happens in this area. Remember when we had the “Brown outs”? there were FINES aplenty for them raising our rates. did YOU get a refund? Remember when wall street and the banksters got fined $280,000,000,000? did YOU get any of that? We can kick and piss and moan. He’ll prolly walk away and be scolded. Someone will get fined and we’ll pay more for services Almost rendered.

The only way Wallace was able to pull all of this off was with the assistance of very supportive staff. That is staff who are willing to do anything for a paycheck, just like Hitler’s elite the staff at Wallace can care less who else gets hurt as long as they get their share.

At the very end of the report, Knudsen has three letters after his name: CFE or Certified Fraud Examiner.

Not looking good Mr. Wallace.

If all these agencies sincerely do their homework and start looking into the culture of Wallace Engineering Group they will find that South County San was not the only agency taken advantage of. South County got the biggest shank because of the support he got from all the players he was in bed with like Ferraro, Shoals, Guerrara, etc. Check out the fees and work he has done for Los Osos as well as San Luis Water and Sewer Treatment Plants. Wake up taxpayers, how many upgrades have you seen every 3-5 years at a cost of millions, all under the direction of the Wallace Group. This man has raped the taxpayers of this County! I hope that blind eyes will not fall on the Knudson Report.

One must remember…an audit is an audit, and an opinion is just that, an opinion.

And once a thief always a thief…..