FOUNDATION FAILURES

Drug Treatment Program -- Or Political Slush Fund?

When the N.C. General Assembly began appropriating tax funds to the John A.
Hyman Memorial Youth Foundation in Warrenton a decade ago, it sounded like
a good idea. The foundation would use the money for drug-counseling
programs in rural northeastern North Carolina and help young people stay
out of trouble.

But in a blistering report released Wednesday, State Auditor Ralph Campbell
said the grant money went not just to help youth, but also to places that
had nothing to do with the purposes of the foundation. Some of it went into
the pockets of relatives of the foundation's chairman, U.S. Rep. Frank
Ballance, D-N.C. Some went to his election campaign staff and to area
ministers who also contributed money to Rep. Ballance's campaign.

Auditor Campbell said the audit showed the foundation's operations were
"riddled with conflicts of interest." His department recommended, among
other things, that the General Assembly beef up its oversight of
appropriations to non-profit organizations and that legislators be required
to disclose their relationships to organizations that get state funds.

Before his election to the U.S. House in 2002, Rep. Ballance was a state
legislator for nine terms. He was vice chair of the Senate Appropriations
Committee when the first of $2.1 million in state funds began to flow to
the John A. Hyman Memorial Foundation for Youth, named for the state's
first black congressman.

Mr. Campbell said lack of documentation limited auditors to examining
accounts for only the period 2001-2003. But that was enough to show that
Rep. Ballance, who had power over the organization's checkbooks, paid
$5,000 to his daughter for computer work she never finished, $35,000 in
rent to his church in Warrenton (where the foundation occupies space and he
chairs the board of deacons) and $340,000 to 21 campaign contributors or
organizations where campaign contributors work. The money often was passed
around in "mini-grants" to other organizations without established
procedures for making those grants.

Copies of the audit have gone to state Attorney General Roy Cooper, who
vowed to pursue return of misused money, and to U.S. Attorney Frank Whitney
of North Carolina's Eastern District.

The audit reveals more than sloppy bookkeeping and inadequate documentation
by the foundation. It depicts a pattern of questionable transactions that
suggest a political slush fund financed not by voluntary contributors but
by taxpayers.

The foundation did provide drug counseling to young people. But the
foundation's failure to abide by its own rules and to provide required
documentation to authorities threatens more than the future of a single
nonprofit organization. It also threatens to undermine public and
legislative support for a host of reputable nonprofit organizations that
provide needed services the state cannot provide. That would be a heavy
price to pay for the Hyman foundation's multiple failures.