In a medium saucepan, cover potatoes with salted water and bring to a simmer. Cook for 10-12 minutes, just until tender. Cool, then shred potatoes into a large mixing bowl using the large holes of a box grater. Add cheese and toss to blend. Season mixture with salt and pepper and mix in egg.
Using a measuring tablespoon, scoop even spoonfuls of potato cheese mixture. Form each scoop into a 1/2" thick round patty and dredge lightly on both sides in flour.
Heat olive oil over medium-high heat in a a large frying pan. In batches of 6-8 pieces, place cakes in hot oil and cook 1-2 minutes per side, or until lightly browned. Drain on paper towels.
Whisk sauce ingredients together in a small bowl and serve with warm potato cakes.