OVERSIGHT OF GRANTS EXAMINED

For a decade, the John A. Hyman Memorial Youth Foundation has helped people
quit drinking, steered children away from drugs, and handed out tens of
thousands of dollars to youth programs. Frank Ballance, a former state
senator elected to Congress last year, is the foundation's patron saint.
Year after year, the Warrenton Democrat secured from $100,000 to $312,000 in
state money for the program that served his district north of the Triangle.
But Ballance didn't publicly disclose that some of the foundation's money
went to the day care that his mother operates, to campaign staffers, and to
nonprofit agencies run by campaign contributors.

Some state lawmakers say the foundation's finances have opened their eyes to
the need for more accountability from nonprofit groups that get state money.
The legislature sends about $760 million a year -- nearly 5 percent of the
state budget -- to dozens of such groups.

"We're going to have to take long and close looks at programs like this that
are not run directly by the state," said Rep. Joe Kiser, a Lincoln County
Republican who oversees spending on justice and public safety programs. "We
have got to have better accountability than we had on this case."

New information about the Hyman Foundation is coming out in federal tax
returns, which the foundation first began filing in July. It was violating
federal laws that require all nonprofit groups that gross $25,000 or more a
year to file annual returns with the IRS.

The foundation also failed to provide annual audited statements to the state
Department of Correction, as legislators required.

In January, the Correction Department cut off state money. When legislators
learned about the lack of accountability three months later, they dropped
the foundation from the budget. They also called for a state audit, which is
due out soon.

Ballance, who served for 18 years in the General Assembly and who is
chairman of the foundation's board of directors, declined to be interviewed
for this article. In earlier interviews, Ballance has said the foundation's
lack of financial accountability stemmed from miscommunication within the
organization and a lack of expertise about what needed to be reported.

In a statement last week, Ballance said the foundation is moving quickly to
comply with financial reporting requirements. "I continue to support the
foundation's work of addressing issues of substance abuse prevention and
treatment in communities of need," he said.

Fighting drug abuse

The foundation is based at Greenwood Baptist Church in Warrenton. Two nights
a week in the church basement, it operates a state-certified counseling
program for people with drug and alcohol problems. About a dozen people
showed up Thursday.

The foundation runs a second program in Halifax County that transports
people struggling with drug and alcohol addictions so they can get medical
treatment and counseling. It also runs a support group for their children.

Nicholas Powell, 20, a junior at N.C. A&T State University in Greensboro,
said the support he received as his mother battled alcoholism made the
difference in his going to college. He spent most of his childhood in a
foster home, and the foundation served as a surrogate family. It helped him
visit his mother and understand her cravings for alcohol, prepared him for
the SAT and sponsored recreational activities such as baseball and bowling.

"The John Hyman Foundation gave me a reason to believe I could be someone,"
Powell said.

In addition, the foundation has doled out small grants to schools, churches,
child-care centers and other nonprofit groups. But it has not required those
groups to provide detailed written reports on how they spent the money.

The foundation is just now catching up on its federal tax returns, showing
how much it received and from where -- and how much it spent and how. Under
scrutiny from the media and the John Locke Foundation, a Raleigh think tank,
it so far has filed returns for 1994, 1995, 1996 and 1997. Though the
foundation was created in 1985, it was dormant until 1993. Since then, it
has received about $2 million, state records show.

Eddie Lawrence, pastor of Greenwood Baptist, has been the foundation's
director for three years, making about $30,000 a year. But when the
foundation's financial problems became public in April, Lawrence lost his
$66,351 state job as director of the Human Relations Commission. He had not
disclosed his paid foundation work to the state, as required.

In June, the foundation took another blow when officials with the state
Administrative Office of the Courts decided it did not provide the level of
services needed for drug defendants. That ruling shut down Warren County's
drug court and cost the foundation several clients.

Where money goes

The foundation's reports to the state and the IRS have raised further
questions.

The foundation's conflict-of-interest policy bans board members from
benefiting personally from its activities. But tax returns show that the
foundation gave $3,000 in 1995 and $4,250 in 1997 to a nonprofit day care in
Windsor owned by Ballance's mother, Alice. The Kiddie World Child
Development Center is in a building owned by Frank Ballance and his wife.

Alice Ballance said the grants helped pay for a drug prevention program for
12-year-olds. "We asked them to give us a small grant, and they did," she
said.

Sears Bugg, a recent past president of the Warren County Republican Party,
calls the foundation a case of political spoils.

"I think there's some violations of campaign laws, and ethically it doesn't
look like appropriate behavior," he said. He said he saw little proof the
foundation had done much for communities it was designed to serve.

A major recipient of Hyman foundation money is Nebo Baptist Church in
Murfreesboro. The tax returns show that the church received $8,500 in 1995
and $53,000 in 1996.

Nebo's pastor, Robert Holloman, a Democrat, was elected last year to succeed
Ballance in the state Senate, and his wife, Velma, served on the
foundation's Board of Directors until recently. Both have donated to
Ballance's political campaigns.

Holloman said the money has gone toward his church's Reaching Out Against
Drugs program, which includes a Friday night counseling session for as many
as a dozen people suffering from alcohol and drug addictions. The church
also has received money to provide counseling and tutoring for pregnant
teenagers.

He calls the criticism of the foundation "a big political stink" raised by
Republicans looking to wound Ballance.

"The bottom line from what I've seen of the Hyman Foundation is they are
about helping people and making a difference in the community," Holloman
said.

Two people who helped Ballance get elected over the years are also paid
foundation staffers. Melinda Solomon-Harris, who is paid $24,200 a year to
run the Halifax County program, has served as Ballance's campaign chairwoman
for his legislative races. She also works full time as an assistant
principal for Weldon High School in Halifax County.

Joyce L. Bullock is paid $14,400 a year as an administrative assistant for
the foundation. She was Ballance's legislative aide in the General Assembly
and treasurer for Ballance's state Senate and congressional campaigns.

Bullock and Solomon-Harris said that they saw no conflict in their dual
roles.

Legislators say the Hyman episode shows that they have too little
information on nonprofits that get state money to provide a wide range of
services, such as arts programs and halfway houses for inmates. Some
nonprofits are good at providing detailed financial statements; others are
not.

Kiser said legislators should disclose their financial relationships with
nonprofit groups that seek state money. Rep. Phil Haire, a Jackson County
Democrat who also oversees those programs, said nonprofit agencies should
provide federal tax returns to legislators.

Both predicted the reins will be tightened during the next legislative
session, which starts in May.