FOUNDATION LOSES STATE FUNDING

A Warrenton drug counseling program with U.S. Rep. Frank Ballance as its
board chairman has lost state funding after failing to account for how it
spent $450,000 in public money.

The John A. Hyman Memorial Youth Foundation is required to file an annual
audited financial statement with the Department of Correction to receive
roughly $225,000 annually -- its sole source of income. After receiving no
statements for the 2001 and 2002 budget years, Correction Controller Paul
Gross said in a letter Jan. 7 to the foundation that he would release no
more money until he had the statements. "You would think that a private,
nonprofit agency would have an annual financial report prepared for them by
their accountant," Gross said Tuesday. "But I have not received it as of
today."

The 18-year-old foundation, which operates from a church basement, has
already admitted failing to file financial reports to the Internal Revenue
Service, as required by law. The reports, called Form 990s, show how a
tax-exempt nonprofit corporation received and spent its money.

For several years, the foundation has received yearly allotments of
$200,000 to $250,000 from the state Department of Correction for counseling
programs. Though the money comes from the Correction budget, the department
does not evaluate the foundation's programs. That is left to legislative
review committees.

'Entitled to know'

Ballance, a Warrenton Democrat and former nine-term state legislator, is
the chairman of the foundation's board of directors. The wife of state Sen.
Robert Lee Holloman, an Ahoskie Democrat, is also on the board.

Ballance said in an interview Tuesday that the foundation's failure to
provide the financial information to the state was an oversight. He said
erroneous financial advice caused the foundation not to file the IRS forms.
The foundation's accountant is working to produce the documents, Ballance
said, and he hoped they could be released at a news conference Thursday.

"The public is entitled to know, your readers are entitled to know, and
we're moving aggressively to get these done," Ballance said.

The foundation is based at Greenwood Baptist Church in Warrenton, northeast
of Raleigh near the Virginia line. It holds counseling programs for about
25 people two hours a night, two nights a week, Ballance said. The
foundation has no full-time employees but employs about a dozen part time,
he said.

The church's pastor, the Rev. Eddie W. Lawrence, is the foundation's
executive director, making about $25,000 to $30,000 a year, Ballance said.
Lawrence, 43, is also full-time executive director of the state Human
Relations Commission in Raleigh and makes $66,351 annually. Efforts to
reach him failed Tuesday.

The foundation has a satellite office in Roanoke Rapids that helps parents
struggling with drug and alcohol care for their children, Ballance said.

Accountability

In recent days, state legislators have become concerned about the
foundation's lack of accountability. In late March, Lawrence gave a report
on the foundation to the House Appropriations Subcommittee on Justice and
Public Safety and did not mention the failure to provide financial
statements. He said the foundation has served more than 5,000 people.

About half the foundation's budget for the previous fiscal year, $112,550,
was spent on salaries, and an additional $75,346 on "prevention
mini-grants," Lawrence's report said. Legislators asked few questions.

One subcommittee member, Rep. Frank Mitchell, an Iredell County Republican,
said at a subsequent meeting that he had heard rumblings about the
foundation, but another member, Rep. John Hall, a Halifax County Democrat,
said it was a good program, and debate ended. The subcommittee then voted
to continue the foundation's $225,000 allotment another year, and the full
House followed suit with its $15 billion budget passed last week. The
Senate and governor have yet to approve the House plan.

Rep. Joe Kiser, a subcommittee co-chairman, said Tuesday the state auditor
will review how the foundation spends state money.

'Do not pay'

The foundation should have been cut off in January 2002 for failing to
provide an audited statement, Gross said, but Department of Correction
staff didn't catch it and continued to provide the money. Correction staff
became aware of the nonreporting in December, he said.

Gross warned Lawrence in the Jan. 7 letter that funding would end by Jan.
31 if no financial statements were produced. On March 25, Lawrence
requested the remaining $101,250 of the current fiscal year's appropriation
from the Correction budget office.

Gross spotted the letter before the money was released.

"DO NOT PAY," Gross wrote, underlining each word.