Government testifies in Catholic accountant’s trial

CLEVELAND – A former top accountant for the Cleveland Catholic Diocese cheated the church and defrauded the government by handling about $785,000 in kickbacks that went to the top-ranking lay executive of the diocese, the government said at yesterday’s trial opening.

Anton Zgoznik, 40, of suburban Kirtland Hills, was instrumental in arranging the secret payments from church funds to Joseph Smith, former diocese chief financial officer, federal prosecutor John M. Siegel told a U.S. District Court jury.

Zgoznik’s attorney, Robert J. Rotatori, said the payments amounted to secret executive compensation approved in an exhaustive church budget process that included Bishop Anthony M. Pilla, who is now retired.

“That was the way of the diocese and priests – secrecy,” Rotatori said.

Zgoznik, the son of devout Slovenian Catholic immigrants, was raised to be respective of priests without question, Rotatori said, and approved the secret payments to Smith at the direction of top diocesan leadership.

Zgoznik went along because he had been taught as a young Catholic to “never, ever, ever question the clergy,” Rotatori said. “You never doubt the priest. Whatever the priest tells you to do, you accept.”

Siegel said Zgoznik concocted the idea of secret executive pay approved by church leaders as a legal defense against a mounting church audit which eventually led to an FBI investigation.

Zgoznik, who rocked in his chair and sipped coffee during the opening statements, is facing 15 counts, including mail fraud and conspiracy to commit mail fraud.

Smith was hired for a top financial position with the Columbus Diocese after leaving the Cleveland job. He quit in March after his indictment and faces a trial later.

Rotatori asked the jurors to consider whether it was strange for Smith to be hired in Columbus in a sensitive church job after irregularities had emerged in his Cleveland office.

The Columbus diocese won’t comment on the matter, said the diocesan vice chancellor in Columbus, Deacon Thomas J. Berg Jr.

According to Siegel, the payments to Smith were funneled through $17 million in outside contracts with various firms, mostly accounting and financial consultants to the church, to conceal his true salary.

“Mr. Zgoznik was instrumental in setting up that arrangement,” said Siegel, using an overhead projector to detail the alleged kickbacks and the church’s financial reporting system eventually directed by Smith when he became chief financial officer.

The alleged conspiracy hurt the church financially and defrauded the Internal Revenue Service of taxes, Siegel said.

Rotatori said the defense wouldn’t dispute the payments but would show they reflected additional executive compensation authorized by church leaders determined to pay Smith more after he complained he was underpaid as an accountant for a nonprofit institution.

Rotatori said Zgoznik was hired by the diocese because he had experience auditing church accounts and knew how the diocese handled its books.