Penn State knew that Sandusky was showering with children. They knew this, if for no other reason, because he was investigated for child abuse in 1998 and he admitted showering with boys. They knew he took a young child to a bowl game. They knew he was still showering with children. In fact, it would appear he was retired because of the investigation. But rather than removing his access to the program, they continued to allow him access to the athletic facilities. They allowed him to have an office 20 feet from Paterno's office.
Last, there is some very strange timing going on. A grand jury was convened to investigate Sandusky in 2009. Despite it being convened in the Spring of 2008, no indictment was handed down until last fall -- very strange for a grand jury to last two years before handing down an indictment. This despite the fact McQueary testified about "sexual sounds" coming from the shower where he discovered Sandusky and a boy in what appeared to be a sexual act (according to the Grand Jury report). But what really makes it interesting is how, three years later, the indictment was handed down the week after Paterno finally broke the record for the most wins in Division 1 football.