A former assistant treasurer of the Roman Catholic Diocese of Cleveland is to go on trial Monday, accused of taking part in widespread financial mismanagement and looting of church funds.Lawyers for the defendants in this trial and a related case, however, say top church officials are to blame; in documents filed in federal court, the lawyers say the diocese’s former bishop and a priest used secret accounts to embezzle millions of dollars from the diocese.
Such accusations are “scurrilous,” the diocese has said in a written statement.
The former assistant treasurer, Anton Zgoznik, also worked as a consultant to the church.
He and the former chief financial officer of the diocese, Joseph Smith, face a total of 27 criminal charges, including money laundering and tax evasion.
Federal prosecutors say Mr. Smith hired Mr. Zgoznik as a consultant to perform accounting services for the diocese and to computerize records.
In return for contracts worth $17.5 million over eight years, Mr. Zgoznik used secret accounts to pay Mr. Smith kickbacks totaling $785,000, according to the indictment. Mr. Smith’s trial is expected to begin after Mr. Zgoznik’s.
The indictment also says Mr. Smith embezzled from the Catholic Cemeteries Association and took kickbacks from the diocese’s insurance broker, using some of the money for a condominium in Tampa.
He used off-book accounts to hide these and other earnings from the IRS, the prosecutors say.
“He was the highest-ranking layman in the diocese for 20 years,” Robert Tayek, the diocese spokesman, said of Mr. Smith. “People here are just terribly disappointed.”
The defendants counter that the Rev. John Wright, the diocese’s former financial and legal secretary and Mr. Smith’s boss, created the system of secret compensation for favored employees.
“The diocese has hundreds of off-book accounts which hold millions of dollars,” Philip S. Kushner, the lawyer for Mr. Smith, said in a written response to questions.
Diocese leaders “are trying to make Mr. Smith a scapegoat for practices and a culture they wish to deny,” Mr. Kushner said.
In court filings, the defense lawyers say Bishop Anthony M. Pilla, who led the diocese for 25 years before retiring in 2006, had an account off the books that was worth more than $500,000; whether it was his or the diocese’s money is in dispute.
“Bishop Pilla withdrew money from the account for his own use in a manner designed to conceal the transactions and his use of the funds,” defense papers say.
Through his lawyer, Kevin Spellacy, Father Wright said that he was “duped” by Mr. Smith.
“These guys are desperate thieves,” Mr. Spellacy said. “They’re trying to destroy good people. It’s a horrible defense, but it’s all they got.”
Accusations of financial impropriety in the Cleveland diocese have surfaced in the past.
In June 2005, 36 lay Catholics filed a class-action lawsuit against Bishop Pilla for allowing his top deputies to embezzle $2 million from the church, according to court documents.
A judge dismissed the case, saying the lay members did not have standing to bring suit.
“Bishop Pilla, Father Wright, Joe Smith, they were all stealing,” said Santiago Feliciano Jr., the lawyer who filed the class-action suit. He had worked alongside diocese leaders as director of the church legal office for 17 years before resigning in 2000.
“It was a corporate culture that was corrupt at almost all the top levels,” Mr. Feliciano said.
In the criminal cases, the lawyers for the defendants say that in addition to approving all the payments to Mr. Smith, Father Wright directed almost $1 million in disguised compensation to himself, his relatives and friends, according to court documents.
One of Father Wright’s secretaries “was on the payroll” of a company that does business for the diocese, “but didn’t work there,” Zrino Jukic, a former employee of Mr. Zgoznik, told the Federal Bureau of Investigation in an interview, according to a transcript filed with the court by the defense.
The woman “was Father Wright’s girlfriend,” Mr. Jukic told the F.B.I.
The woman received $290,000 in off-the-books compensation, said Robert J. Rotatori, Mr. Zgoznik’s lawyer.
“This was a common vehicle that Father Wright used,” Mr. Rotatori said.
Father Wright’s lawyer, Mr. Spellacy, denied the accusations.
The situation in Cleveland may be an example of a wider problem, according to Charles Zech, an economics professor at Villanova University.
“What’s unusual about Cleveland is that this usually happens at the parishes, not the diocese,” said Professor Zech.
“The church lacks really basic internal controls, which makes embezzlement easy.”
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