Yet Sandusky was not criminally charged nor placed on a state registry of suspected child abusers, and prosecutors say he continued assaulting boys for more than a decade until his arrest in November.
The campus police department had an investigatory report on an encounter in which Sandusky was accused of having inappropriate contact with an 11-year-old boy with whom he had showered naked on the Penn State campus.
The police file includes the report of State College psychologist Alycia Chambers, who interviewed and provided counseling to the boy.
"My consultants agree that the incidents meet all of our definitions, based on experience and education, of a likely pedophile's pattern of building trust and gradual introduction of physical touch, within a context of a 'loving,' 'special' relationship," Chambers wrote.
However, a second psychologist, John Seasock, concluded that Sandusky had neither assaulted the boy nor fit the profile of a pedophile.
Chambers and Seasock did not immediately return phone messages left at their offices Saturday.
Centre County prosecutors ultimately decided not to charge Sandusky, and the case was closed until a statewide grand jury accused the retired defensive coordinator of abusing the boy and nine others over a 15-year period. Sandusky, who faces more than 50 counts of child sex abuse, has pleaded innocent and awaits trial.
Chambers' warning to authorities raises new questions about the university's failure to stop Sandusky. Eight of the 10 boys were attacked on campus, prosecutors allege.
In 2002, four years after the 1998 investigation, prosecutors say then-graduate assistant Mike McQueary caught Sandusky sexually assaulting a boy in the football showers. McQueary reported what he saw to coach Joe Paterno, who, in turn, reported the allegation to university officials. But no police investigation was ever done.
A lawyer for the then 11-year-old boy said in a statement Saturday that details of the 1998 campus police investigation point to "a conspiracy of silence" surrounding Sandusky's behavior.
Howard Janet questioned why the university did not take further action when Chambers' told campus police that Sandusky fit the profile of a likely pedophile. Janet also challenged Seasock's objectivity, saying that Seasock apparently had ties to an agency that certified Sandusky as a foster parent.
Penn State said in a statement Saturday that it would not comment, citing ongoing investigations.
Sandusky's attorney, Joseph Amendola, told The Associated Press on Saturday that Seasock's report was "exculpable" and that the 1998 incident was not as clear-cut as Chambers made it out to be.
"We could get five psychologists, child psychologists, who specialize maybe in sexual dysfunctions or pedophilia look at the same case and talk to the same people and come up with five different conclusions," he said in a phone interview.
The 1998 allegation was the first known complaint made to authorities about Sandusky. A woman called the Penn State police department, saying she was troubled after her 11-year-old son told her he had showered naked with Sandusky on campus.
Prosecutors say Sandusky lathered up the boy - known as Victim 6 in the state's current criminal case - bear-hugged him naked from behind, and picked him up and put his head under the shower. Detectives say that later, with police secretly listening in, Sandusky told the boy's mother the joint shower had been a mistake, and blurted: "I wish I were dead."
The woman's complaint triggered a separate review by the state Department of Public Welfare, which found no indication of abuse by Sandusky.
But state welfare department investigator Jerry Lauro told AP in December that he didn't have access to the criminal investigative file. On Wednesday, he told The Patriot-News of Harrisburg that he never would have closed the case had he seen the reports from Chambers and the second psychologist, Seasock.
"The course of history could have been changed," Lauro told the newspaper, which first reported the existence of the twin psychological reports.
"The conclusions (Chambers) had drawn in her report were pretty damaging," Lauro told the paper. "I would have made a different decision. ... It's unbelievable, and it gets my blood pressure going when I think about it."
Seasock, who worked with Centre County Office of Children and Youth Services, interviewed the boy for an hour and wrote in his report - also included in the police file obtained by NBC News- that he did not find any evidence of "grooming" or "inappropriate sexual behavior" by Sandusky.
"All the interactions reported by (the boy) can be typically defined as normal between a healthy adult and a young adolescent male," Seasock wrote.
Seasock, however, did not review Chambers' report or prior interviews with the boy before submitting his own report, the police report indicates, nor did he elicit key details, including the fact that Sandusky had kissed the boy and told him he loved him.
Amendola said that Chambers has refused to talk to the defense, but that he would try anew in light of the NBC report.
"Any argument the commonwealth had about privilege is out the window," said Amendola. He said he found the timing of the NBC report curious because it came several days after a judge ordered the attorney general to turn over the psychological reports to the defense unless prosecutors could persuade the court they are not subject to disclosure.
Chambers told NBC News in an interview that she was horrified to learn that Sandusky allegedly continued assaulting boys long after she warned Penn State authorities about him.
"I was horrified to know that there were so many other innocent boys who had been subject to this, who had their hearts and minds confused, their bodies violated. It's unspeakable," she said.