Insurance payments and retirement plans were the focus of testimony delivered Wednesday, as prosecutors continued to probe the legitimacy of benefits awarded to former Schneider Regional Medical Center (SRMC) head Rodney Miller Sr.
Miller, along with former Schneider executives Amos Carty Jr. and Peter Najawicz, have been charged with helping one another defraud the hospital of millions of dollars by, among other things, awarding each other lavish pay and benefits packages without the approval of SRMC’s governing board.
At issue for the prosecution are two 2005 employment contracts for Miller — one which they have said reflects his official $150,000 government salary and another, which lists a base salary of $265,000 along with a number of other perks, incentives and allowances that they claim did not "exist."
One of the benefits included in the second contract was the establishment of a Rabbi Trust, which one witness testified Wednesday is basically a retirement fund set up for "highly compensated" private employees.
Julito Francis, who advised Miller in 2005 about setting up the trust when he worked as financial manager for Popular Securities, said he made a number of recommendations regarding the account that Miller could take to the hospital’s governing board for negotiation. Francis said he was initially contacted by Carty, the hospital’s legal counsel at the time, about retirement funds for Miller, which also included the possible creation of a 403(b) account.
Francis said money deferred from Miller’s paycheck would be deposited into the trust, which would allow him not to be taxed on his entire salary for the year. Francis added that both the accounts would have to be authorized through a board resolution, while the payments would have been made by the hospital’s payroll department. Employee check stubs would have reflected the deferred payments, he added.
Under questioning from government attorney Esther Walters about Carty’s role in the process, Francis said he was initially told that Carty was involved with the board’s compensation committee, which other witnesses have said was set up to evaluate Miller’s salary package and perks.
Francis said that in subsequent conversations with Carty about the deferred payments and how they would be documented, Carty told him that including it in the check stubs was "not the hospital’s way of dealing with additional compensation," but was rather something dealt with by the chief financial officer.
Francis said to his knowledge, neither retirement account was set up for Miller at Banco Popular.
Francis said his next encounter with Miller was in 2007, prior to his leaving the hospital. In his office, Miller revealed that he would soon be "receiving in excess of $300,000" and sought Francis’ advice on what to do with it, Francis testified.
"My advice was that if he didn’t receive it yet, he shouldn’t take it, but rather defer payments into the accounts so he wouldn’t be taxed the full amounts," Francis said, adding that Miller subsequently filled out an application for a new investment account.
"My recollection was that he said the money would be coming from the Rabbi Trust; and I said that can’t be, because he would be taxed on what was in there," Francis said on the stand.
Under cross-examination by Miller attorney Alan Teague, Francis was taken through the benefits schedules attached to Miller’s second 2005 contract, which did include provisions for a long-term life and disability policy, along with the creation of an annual deferred compensation plan. The amounts in both cases would be determined by the board, according to the sections of Miller’s contract that Teague read aloud Wednesday.
"This seems to be consistent with what Mr. Miller told you, with what he sent to you?" Teague asked.
"I can’t say that it’s completely consistent, but it outlines those plans, yes," Francis responded.
Other sections read aloud from the contract said the hospital’s board would deposit annual contributions of $125,000 into Miller’s Rabbi Trust. The trust was set up for five years, and if Miller chose not to renew his contract with the hospital, then a portion of the contribution amount would still be deposited for the remaining years left on the plan, according to the schedule Teague referenced.
However, it was not said Wednesday if the Rabbi Trust was eventually set up, though Teague did ask Francis whether Miller would still be entitled to the deferred contributions if it wasn’t.
"It was not intended to be a supplemental contribution, but a deferment," Francis responded. "If he was able to negotiate differently, it was outside of what we had discussed."
Wednesday afternoon saw testimony from two federal auditors that worked on the 2008 report that had initially revealed financial mismanagement at the hospital. It this report that brought about the charges against Miller, Carty and Najawicz, the hospital’s former chief financial officer.
Assigned to do a review on the hospital’s contracts, auditor Alexandra Samuel said she had, at one point, requested a copy of Miller’s employment contracts but was told by Carty that it contained "confidential information" that he didn’t think could be released to the public.
"I found it a bit strange, because we usually do get copies of the contracts we request," Samuel said, adding that she then put her request in writing and eventually received a letter from Carty saying that her request was being reviewed by the hospital’s board.
Samuel said that in the meantime, she, along with a colleague, was eventually allowed to peruse the contract at the hospital. Auditors were given a copy of the contract after getting the green light from the board, she added later.
Samuel’s work notes also discussed payments made for Miller’s, Carty’s and Najawicz’s various insurance packages, which included life and disability coverage. Reading from one set of notes, Samuel said she had concluded during the audit that certain packages were offered to only the three former executives and not to other hospital employees.
While Chambers questioned under cross-examination whether Carty actually limited auditors’ access to the document, Najawicz defense attorney Robert King asked Samuel whether she recalled a section of the audit that says that his client "never had a copy" of Miller’s contract.
King has continued to separate Najawicz from the other two defendants and argued in his opening statements that his client made payments to Miller, Carty and other employees because he was directed to.
After asking Samuel Wednesday to look over two sections included in the draft and final audit reports, King then asked again if there was language included that indicated Najawicz did not have a copy of Miller’s employment agreement.
"Yes," Samuel said.
Shannie DeCastro-McClean, another federal auditor, also testified to a number of bank transactions she investigated while working on the report — specifically payments she said did not have any supporting documentation.
Reading through her work notes under questioning from government attorney Denise George-Counts, DeCastro-McClean said she had concluded that payments made to Miller from a Scotia Bank account set up in 2005 "exceeded" the amounts allowed in Miller’s contract for wages, benefits and allowances by approximately $1.17 million.
Another note said that Miller’s contract did not go through a competitive bidding process, while a third note said the hospital’s board had "misled" the government about what was included in the contract for salary and related benefits.
During cross-examination, Teague pulled out a schedule of payments made to Miller during his tenure at the hospital — a schedule that DeCastro-McClean said she had never seen before. Calculator in hand, Teague had DeCastro-McClean add up what was included in Miller’s contract for perks and benefits, and compare them to what was included in the payment schedule and the auditor’s own notes about the Scotia Bank account.
After each math exercise, Teague would ask whether the employment contract and other documents entered into evidence did substantiate the payments made to Miller from the Scotia Bank account — including the $125,000 annual contribution to the Rabbi Trust.
"Yes," DeCasto-McClean said in response. Benefits referenced by Teague from Miller’s contract included the base salary payment of $265,000, along with retirement, annual incentive bonus and a cost-of-living allowance.
The trial is scheduled to resume Thursday morning.
