You're not even sure of what you saw, maybe it was nothing and your mind is in the gutter. How awful would you have felt if it HAD been nothing and you HAD called the cops? How embarrassing for that man! AND the cops, and for you!
I once saw a guy standing on the side of the road urinating, not behind his car, flat out peeing in the street, and my kids DID see it. I slammed on the brakes and threw my car in reverse and leaned on the horn. The guy (who had a beer in the other hand, go figure), peed all over his pants. That's what you get, jack @ss!! I didn't have to call the cops, they were getting ready to pull up anyway because apparently this guy was causing other problems as well. Rarely are these things reported because they're so short lived (and by the time the cops come, the perpetrator is long gone), but that made me mad only because the guy wasn't even trying to be stealthy about it.
Honestly though, seeing something like that in passing isn't a huge deal. If your kids haven't seen a wiener before, they will eventually. Like they say, you've seen one, you've seen them all. I'm not saying your kids should be exposed to watching adults masturbate or urinate, I'm just saying, IN PASSING, in that split second, there is no real long term damage or trauma done, no big deal ;)