With a federal grand jury set to look at the books of a drug and alcohol treatment charity headed by Rep. Frank Ballance, the North Carolina Democrat’s attorney disputed a highly critical state audit that found more than $325,000 in questionable payments.

Joseph Cheshire, a Raleigh criminal defense attorney who also represents Rep. Charles Taylor (R-N.C.), said that a number of people who have received grants from the John A. Hyman Memorial Youth Foundation have been served with subpoenas and are scheduled to appear before a North Carolina grand jury Nov. 5. He said Ballance, who operated the nonprofit while simultaneously steering state funds to it while he served as a state legislator, has not received a subpoena.

Cheshire said he could not predict whether Ballance would be called before the grand jury. “I do not know what the federal government is doing. They have not bothered to let me know,” he said in a phone interview.

“I would hope that once they are finished gathering information, they would come to the same conclusion that our investigation has come to, and that is that all of the monies that were spent by the foundation were spent for the purpose for which they were given,” Cheshire said.

That assertion challenged one of the key findings of an audit by North Carolina Auditor Ralph Campbell, who charged that more than $325,000 spent by the foundation did not go to programs or purposes supporting its mission. Cambell has recommended that the foundation return the amount it has left in its account — about $238,000 — to the state, which provided the nonprofit more than $2.1 million over the past 10 years.

Cheshire said the money questioned by auditors was used to administer the mini-grants offered by the foundation: “It’s our very strong position that the foundation was entitled to do that and all of that money — the money that was attributed to administrative costs — was in fact spent for the purposes for which it was intended to be spent.

“The real question is whether the foundation had the right to set aside certain amounts of money for administrative costs,” Cheshire said.

Cheshire also defended a $5,000 payment the foundation made to Ballance’s daughter for work that the auditor said was never completed. He called the agreement with Ballance’s daughter “an appropriate contract,” noting that she operated a computer service business. The money, however, was returned to the foundation before the release of the audit “because we determined that the contract wasn’t completely fulfilled,” Cheshire added.

He said the foundation is currently working on filing several years of reports and tax returns with state and federal agencies. Asked why Ballance had failed to file the returns, Cheshire said, “that’s a hard question to answer. In all probability, the Congressman was going so fast, juggling so many balls in the air, that he wasn’t paying attention to the administration of the foundation.”

He said Ballance has acknowledged “responsibility for the fact that he wasn’t doing the paperwork and administration as timely as he should have.” He said that the Internal Revenue Service, which requires annual returns of charitable groups, has not contacted the foundation about the missing returns and has not initiated an audit of the group.

Cheshire, who is also representing Taylor in connection with several criminal investigations involving Taylor’s Blue Ridge Savings Bank, said he will not be paid by the foundation nor by Ballance’s campaign funds. “I wouldn’t ask his campaign to do that. I don’t think that would be an appropriate thing expense of campaign funds,” he said.

Cheshire declined to discuss the payment arrangements for representing Ballance. “I’m his lawyer. I think that is all that needs to be said.”

A spokeswoman for Ballance declined comment.