Wrong.
Sandusky retired in 1999. He was still allowed access. The Graduate Assistant (he wasn't hired as an assistant coach yet) came to Paterno in 2002 with the allegation.
Paterno reported it to the AD who told Joe he would take care of it.
They then banned Sandusky from the facilities and from bringing kids on Campus. In Joe's eyes that was probably enough.
Besides there are conflicting reports on what the GA told JoePa at the time. Some reports say he witnessed it; others say the GA only heard sexual noises.
Either way, all previous incidents (at least according to the Grand Jury reports) were kept underwraps by the local & university police and the DA. The university administration, nor JoePa had an idea of what was going on. At least thats what is reported until the 2002 incident.
Here is a timeline for you:
http://www.post-gazette.com/pg/11311/1188149-143.stm
The real question is: WHY DIDN'T THE GA INTERVENE OR CALL THE POLICE?! YOU DON'T WAIT A DAY THEN GO TELL COACH.
F'n idiots ruining the legacy. I feel JoePa didn't do anything wrong. As is something being repeated by the local authorities.
Edit: I actually live in the area and JoePa is still loved here. The real shame is what happened to the kids, not what JoePa and PSU did or didn't know and the abuse the team (the players) is going to receive for the rest of the season and next few seasons for something they had no control over.