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Feds charge ex-CFO of Cleveland's Roman Catholic Diocese in a kickback scheme.
Marie Leone, CFO.com | US
August 21, 2006
A former treasurer and CFO of the Roman Catholic Diocese of Cleveland was indicted by the Federal Bureau of Investigation last week for an alleged kickback scheme totaling $784,000, according to an FBI statement.
Joseph F. Smith, the former Cleveland finance chief who is now finance director of the Roman Catholic Diocese of Columbus, Ohio was charged in 23 counts of conspiring to defraud the Cleveland diocese in an alleged plot that involved directing $17.5 million of church funds to companies controlled by Anton Zgoznik, who then redirected payments to Smith.
Zgoznik, a former finance employee of the Cleveland Diocese who was indicted on 15 counts of defrauding the diocese, owns an accounting firm and other companies that regularly invoiced the church, allegedly under direction from Smith.
The FBI indictment also asserts that Smith and Zgoznik conspired to defraud the Internal Revenue Service by concealing the kickback income Smith received, including an additional $270,000 he collected in the form of two transfers from church funds to Fidelity Investments that were submitted with the diocese's tax identification number and Smith's home address.
Smith's attorney, Philip Kushner, told CFO.com that the charges against his client are "not true. He's innocent. He's going to fight the charges." Zgoznick's attorney, Robert Rotatori, also said that "obviously, Anton is innocent of all the charges."
"The defense is going to be able to establish very clearly that the highest-ranking priest responsible for the financial affairs of the Diocese approved all transactions that are subject to the indictment," Rotatori asserted. That would refute the basic charge that the men defrauded the Diocese, the lawyer said, because "you can't defraud an entity whose [top ranking official] approves and instructs the carrying out of certain transactions."
Smith served the diocese as treasurer, CFO, and eventually financial and legal secretary before he resigned in February 2004, after being put on leave when unusual vendor payments were discovered. Diocese spokesman Bob Tayek declined to comment on the indictment.
Tayek confirmed, however, that in August 2004, the Cleveland Diocese was contacted by the Columbus Diocese about hiring Smith as the Ohio district's new finance chief. Tayek said church officials did not offer a recommendation for Smith, but did inform Columbus officials that the FBI was investigating the district's financial management. Columbus Diocese Communications Director Robin Miller could not be reached for comment.
In 2004, local newspapers, including the Plain Dealer Reporter noted that Smith had been hired by the Columbus Diocese as that district's CFO.
In September 2004, the Cleveland diocese named former private-sector executive John Maimone as CFO. At that time, Bishop of Cleveland Anthony Pilla noted several improvements to the church's internal financial controls systems. In a press release, the bishop said that the diocese's finance office and legal office would be separated to "provide greater accountability and sharper focus of resources."
In addition, the release noted, the diocese's Finance Council would be charged with hiring an independent auditor and had already brought in Ernst & Young to examine the suspect vendor payments and attendant insurance claims. The church also established a written "Conflicts of Interest Policy."
The Catholic Church's financial woes extend well beyond Cleveland and Columbus. Over the past few years, the Vatican's budget has been hit by rising labor costs, a falling dollar, expenses associated with increasing diplomatic missions, and lawsuit settlements stemming from clergy sexual-abuse scandals, according to the Associated Press.
Since January 2002 when the Boston Globe broke the first stories of sexual abuse by Roman Catholic priests, the dioceses of Spokane, Washington, Portland, Oregon, and Tuscan, Arizona have filed for bankruptcy under the weight of multimillion dollar settlements tied to abuse lawsuits. So far, settlements have reached $1 billion, with tens of millions of dollars in unsettled claims on the horizon, said the AP.
And while the Vatican's most recent financial report—released in July—says that the Holy See ran a surplus of $12.4 million in 2005, experts fret that donations from U.S. dioceses and individual donors may drop off as a result of the scandals, added the wire service. Reportedly, U.S. dioceses and individuals are the Vatican's top donors.
Underfunded pension obligations are also plaguing the church. Earlier this month, AP reported that the U.S. Catholic Church faces a "massive" pension shortfall, putting nuns, brothers, and priests over the age of 70 in a bind. The current $8.7 billion liability is predicted to rise to $20 billion by 2023. The pension shortfall will have the greatest affect on the 69,000 nuns in the U.S., who make up 82 percent of the retiree base.