Flow General Inc. yesterday settled a dispute with the Army over improprieties on a computer contract and agreed not to charge the government for $1.7 million worth of work on the disputed job.

The settlement forced the McLean high-technology company to post a loss for the latest quarter and slash its earnings for the year, but kept Flow from being cut off from defense contracts.

In a statement issued late yesterday, Flow General said the Army has agreed to halt proceedings that could have resulted in its subsidiary, General Research Corp., being barred from bidding for new military projects.

General Research admitted in May that several of its employes violated conflict-of-interest laws while trying to win a multi-million-dollar computer contract.

Flow reported net income of $4.83 million (57 cents a share) on sales of $138 million for the year ended June 30 compared with income of $7.2 million (97 cents) and sales of $111.9 million in the prior fiscal year.

For the fourth quarter, Flow General reported a loss of $295,000 on sales of $42.8 million compared with a profit of $2 million (26 cents) and sales of $32.3 million in the final period of the prior fiscal year.

Company officials said that, under the agreement with the Army, General Research has consented to adhere to new internal procedures designed to avoid a recurrence of offenses related to procurement activities.

The agreement with the Army also stipulates that General Research has waived any right to reimbursement of costs incurred to perform work on a computer software design contract. In addition, General Research has agreed not to seek reimbursement of legal fees paid in connection with related civil and criminal proceedings, according to Flow General. The costs Flow General will absorb cut profits for the quarter and year by $1.7 million, the company said.

Flow General said earnings also were hurt by the acquisition of Worthington Diagnostic Systems Inc. in March 1982, increased general administrative and marketing expenses on lower-than-expected sales, and a significant increase in research and development costs.

Flow General provides products and services involving advanced technology to industrial, commercial, and government markets.