Bon Secours unit fraud admitted

December 09, 2005|By MATTHEW DOLAN | MATTHEW DOLAN,SUN REPORTER

The former chief financial officer of a Bon Secours subsidiary admitted in federal court yesterday that he overstated the company's financial performance by $117 million.

David G. Zilli, 48, of Clinton Township, Mich., agreed to plead guilty to one count of wire fraud. He was charged last month with generating false journal entries to overstate the financial performance of Bon Secours Cottage Health Services, which is based in Michigan.

It is a subsidiary of Bon Secours Health System Inc., a nonprofit health system based in Marriottsville, Md.

In a plea agreement, prosecutors recommended that Zilli should be sentenced to probation even though sentencing guidelines call for 1 1/2 to 2 years in prison. He also agreed to pay $144,513 in restitution.

Zilli is to return to court Feb. 24, when U.S. District Judge Richard D. Bennett will decide whether to accept the plea.

U.S. Postal Service investigators found that Zilli reviewed Cottage Health Services' monthly financial statements before their transmission to Bon Secours from 1998 until 2003. Zilli then adjusted financial journal entries to overstate the financial performance of Cottage Health Services, according to court documents.

In January 2004, Bon Secours Cottage Health Services announced that a three-month investigation found that the health system in Grosse Pointe, Mich., systematically overstated income and assets and understated liabilities for seven years.

Those seven years' results had been reported as a surplus, but each of the years became a loss, Cottage Health Chief Executive Officer Richard Van Lith told the Detroit Free Press at the time.

Company officials said then that those accounting irregularities posed no threat to the financial stability of Bon Secours Health System Inc. or its historic West Baltimore hospital.

But court documents say the parent company experienced a drop in its bond rating.

Officials of Bon Secours were forced into the "transfer and termination of a number of employees due to required financial cutbacks," according to court documents.

Maryland-based Bon Secours Health System employs more than 25,000 people at 21 hospitals and other health care facilities in nine states. Bon Secours Cottage Health is one of its subsidiaries, operating a 290-bed Bon Secours Hospital in Grosse Pointe and a 150-bed Cottage Hospital in Grosse Pointe Farms.

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