A former senior staff member of Knox Grammar School was "gobsmacked" to discover two paedophile teachers were still working at the school years after he reported their activities to then headmaster Dr Ian Paterson, a royal commission has heard.

Stuart Pearson, the former general duties master of the school, told the royal commission he reported Craig Treloar to Dr Paterson in 1987 after a boy alleged the teacher had propositioned him for sex.

Mr Pearson told the Royal Commission into Institutional Responses to Child Sexual Abuse on Monday that the boy had come to him in tears following the incident with Treloar.

"Through tears the boy told me he had been invited into Treloar's room," he said.

"Treloar had poured some alcohol. A tape had been put on. It was pornographic but he could not describe it . . . he was just a young boy.

"The boy said . . . Treloar got on the bed and proceeded to get undressed. A man with an erect penis standing near a young boy is a clear indication for the young boy to do something."

Mr Pearson told the commission he immediately reported the incident to Dr Paterson.

He believed Treloar had been sacked and was shocked to discover the teacher, along with another paedophile teacher, Adrian John Nisbett, were still working at the school years later.

"I was gobsmacked," he told the commission. "I could not believe that Paterson would allow these people back into the school and therefore allow these teachers access to students and young kids."

Mr Pearson, a former police officer, told the commission that Dr Paterson discouraged him from investigating former English teacher Nisbett.

"Up until Nisbett, I had authority to investigate," he said. "When it came to Nisbett, I got a very different reaction."

The commission heard Mr Pearson put his job "on the line" to continue investigating and he completed a report which found Nisbett had "targeted post-pubescent boys between the ages of 13 and 15 who excelled athletically as opposed to academically".

He could find no evidence that Nisbett had sexually assaulted students, the commission heard.

Shortly after Mr Pearson gave Dr Paterson the report, Nisbett was removed from position of house master and retired from position of year master.

Dr Paterson confirmed this in a letter to Nisbett in December 1986 which concluded: "Thanks for much good work again this year", according to evidence tendered to the commission.

Mr Pearson told the commission he resigned in 1990, citing one reason as his frustration with Dr Paterson's inaction regarding Nisbett. Nisbett left the school in 2004.

Dr Paterson has been called to give evidence to the commission.

Nisbett was convicted of multiple sex offences involving three students in 2009 and received a suspended sentence. He cannot be summonsed by the commission as he is in South Africa.

Treloar was convicted of sex offences involving three students and jailed for two years in 2010.

A warrant for the arrest of former Knox religious education teacher Christopher  Fotis remains outstanding has he has failed to appear before the commission.

The hearing, before Justice Jennifer Coate, continues.