My guess is that your horse did not "drop down". When the horse does not "drop down" (like he does when he has to urinate), then the penis stays inside the sheath, and probably your horse pulled it back in further in while you were working on him. For a horse that won't naturally "drop down" when you clean him, sedation with a sepcific sedative by a licensed veterinarian would allow the penis to drop, and you can get at both the penis and the sheath easily. It is possible to to a part-cleaning job with the penis inside, but it is not easy to do, and as you noticed, sometimes hard to find. As well, cleaning this way could leave soap/cleanser inside, and as well, you are not able to get at "the bean", which is a hard lump of smegma just inside the urethral opening of the penis. failure to remove this could cause urination and other problems for the horse. Since you just got your horse, and since it is spring vaccines time, when you have your vet out for the vaccines and/or worming, please have him do the sheath cleaning and show you how.