There wasn’t one report.... there were multiple reports something was going on. Clearly Sandusky had some sort of issue; it was obvious for anyone who cared to look.
Secondly, the AD and President of the University came to Paterno’s house in 2004 and asked him to retire. He basically told them to pound sand. Paterno was the most powerful person at Penn State until this all came to light. After that, his power quickly faded away.
I am aware of the incident when they came to his house. He was able to hold onto his job like that, but it doesn't make him the most powerful man in Happy Valley. If they really wanted to, Spanier and Curley could have fired him, and being afraid of public backlash isn't what stopped them. It's not like they would have been without support either. Paterno wasn't unanimously loved during those down years, and people were clamoring for his retirement at the end of this season even before the scandal broke.