I belive you are correct. The "white fuzz" he describes are the polyps and they are reacting to contact with a foreign object / organism by retracting at his touch to protect themselves. If he had algae growing on it, the type you'd most likely see is cyanobacteria (cyano
for short) white is typically a thick dark green to dark red slime. You'd probably see that on the rockwork before being on a coral.
I bet your boss bought the coral while it was closed up and not yet established in the aquarium store, and thought that was how it was supposed to look. Now it's actually happy and established, but looks completely different because of the polyps being extended to feed. I'm pretty sure that gorgonians are obligate filter feeders who rely on the current to bring them suspended food (e.g. micro plankton).