A conflict of interest exists between the administrator of the South County wastewater treatment plant and his engineering firm and the district’s board of directors has failed to recognize or eliminate it, an initial investigation by the county’s civil grand jury has found.

The grand jury started looking into the South San Luis Obispo County Sanitation District — which serves Arroyo Grande, Grover Beach and Oceano — after receiving several complaints about its operational and management practices, according to a report issued Thursday.

Grand jurors concluded that the board and the district “are exposed to a number of financial, legal and public trust issues” stemming from the relationship between the district administrator, John Wallace, and his private engineering firm, San Luis Obispo-based Wallace Group, which provides engineering services to the district.

Grand jurors found three major issues in its investigation: Wallace has a conflict of interest in his dual role as administrator of the treatment plant’s facilities and position as the majority owner of Wallace Group; the three-member board had failed to recognize the existence of the conflict and hasn’t taken action; and Wallace’s contract is 25 years old and “has never been evaluated, re-bid or modified in any way, except for approved increases in hourly billing rates.”

In response, the district’s attorney, Mike Seitz, said he was disappointed at some of the grand jury’s conclusions.

“I don’t think they accurately reflect what’s going on at the district,” he said. Seitz added that the district had already begun to make changes to increase transparency at the plant before the grand jury’s review, including the board’s decision to conduct a peer review and split Wallace’s administrative and engineering contract into two separate contracts. The board will vote on the latter issue at its June 15 meeting.

The district last year also hired independent investigator Richard Thomas of Ojai-based Thomas Consulting to examine the district. Thomas’ report found that while there might be an appearance of a conflict of interest, the board could contract with both Wallace and his firm.

The grand jury called Thomas’ report “ineptly performed.”

Civil grand jury reports are not legally binding and only act to inform the public and government of the issues they highlight. However, the district has to respond to the grand jury’s findings and recommendations by Aug. 29.

Grand jury report on South San Luis Obispo County Sanitation District