AUDIT FAULTS DRUG PROGRAM BEGUN BY N.C. CONGRESSMAN

Raleigh

A state audit of a drug-treatment program begun by U.S. Rep. Frank
Ballance, D-1st, found that it was riddled with conflicts of interest and
spent money on activities that had nothing to do with its intended purpose.

The audit, released yesterday by Ralph Campbell, the state auditor,
recommended that the John A. Hyman Foundation reimburse the state the
$338,925 that remained in its bank accounts as of last week.

"Taxpayers expect, and rightfully expect, that these (nonprofit) agencies
be held accountable for the tax funds they receive," Campbell said.

The Hyman Foundation, which provided drug- and alcohol-treatment programs
in northeastern North Carolina, stopped operations in September after
losing its state money.

The foundation, created in 1985, received $2.1 million from the state going
back to 1994.

In a statement, Ballance, a longtime state legislator from Warrenton who
was elected to Congress in 2002, said that the auditor's report was
"helpful and instructive" and that he was committed to improving the
foundation's policies and finances.

"The Hyman Foundation has been criticized for some of its administrative
oversights with respect to filing reports. I agree errors were made,"
Ballance said. "I believe the public monies have always been used for the
public good for which they were authorized."

Joanna Kuebler, Ballance's press secretary, declined to comment on whether
the foundation would return the remaining money to the state, saying that
the decision has not been made.

The N.C. Department of Correction withdrew state money in January because
the group had failed to provide audited financial statements. It had also
failed to file federal tax forms required of charitable groups showing how
it disbursed the money.

Critics said that the foundation served as a conduit for Ballance's
political patronage.

Auditors found a number of payments from the foundation's funds to
Ballance's relatives and foundation employees who had served on his
election campaigns.

The foundation wrote one $5,000 check to Ballance's daughter for work that
was not performed. Valerie Ballance claimed she had helped install computer
equipment at the Warren County church which housed the foundation, but
auditors found no evidence of that. Another contractor said he was paid
$9,432 for the equipment and installation, and received no help.

The $5,000 was returned to the foundation after questions from auditors.

The state review also found that Ballance made the decisions on which
churches and other groups received "minigrants" from the foundation, and
signed the checks.

Pastors at several churches that received grants from the foundation to
provide drug counseling have been Ballance's political supporters and donors.