High above the Potomac, in a glass tower in Rosslyn, Allen H. Neuharth is building his dream office.

In the reception area of the Gannett Foundation, the nonprofit organization Neuharth chairs, a sweeping double staircase made of carved stone dominates the 23rd floor. The taupe color scheme is set off with such accents as suede wallpaper and hammered brass sinks. A $1 million art collection lines the walls and corridors leading to a private dining room, where guests can gaze down upon the White House and the distant monuments of Washington.

Soon, construction is expected to begin on the latest phase of the foundation's headquarters: a $2 million rooftop meeting center that will be encircled by a running track and exercise facility.

In response to complaints from former trustees and outsiders that the $15 million spent so far on the office is "ostentatious" and a potential misuse of funds for a tax-exempt organization, Neuharth said simply, "The trustees saw the plans and voted to appropriate the money. We're proud of what we got."

The office is the most visible sign of Neuharth's effort to boost the foundation, the 20th-largest in the nation, into the ranks of the best known and most respected. But attempting to achieve that goal has been a costly endeavor under Neuharth, who has made the foundation his main preoccupation since retiring last year as chairman of Gannett Co., the Rosslyn media company he built into the nation's largest newspaper publisher.

During the past three years, the foundation's spending on social-service grants and journalism-education programs has fallen by 19 percent, to $23.8 million, while administrative expenses have climbed by 111 percent to $5.5 million.

The increase in spending was most pronounced in the past year, leaping 83 percent primarily owing to the costs of rent, salary increases for employees and trustees, perks such as automobiles, and the cost of expanding from 24 to 33 employees, according to the foundation.

The foundation's spending has not been without controversy. Eugene C. Dorsey, the foundation's president from 1981 to 1989, complained about the rising costs before he retired last year. A former trustee, Carrie Rozelle, also voiced objections before resigning in January. Neither Dorsey nor Rozelle would discuss the matter for publication, but others involved with philanthropic organizations raised concerns about Neuharth's use of foundation money.

Last year, the foundation's trustees authorized $40,000 to purchase copies of Neuharth's autobiography, "Confessions of an S.O.B.," for donation to journalism schools and college libraries. Neuharth was put on the defensive by the disclosure last month that Charles Overby, who took over from Dorsey as president of the foundation, quietly directed the purchase of the books at retail stores around the country. The pattern of book buying was interpreted by some as an attempt to manipulate the book's standing on best-seller lists.

Neuharth has also rewarded others close to him and the foundation. The organization's $1 million art collection, for example, was purchased through a Cocoa Beach, Fla., art gallery owned by Barbara Whitney, a longtime friend of Neuharth. Neuharth defended Whitney as "a perfectly reputable art dealer." Whitney could not be reached for comment.

"I think they're spending too much money on themselves," said Don Alexander, commissioner of the Internal Revenue Service from 1973 to 1977, now a Washington tax attorney who works with nonprofit groups.

Alexander added, "I do not think foundations should be in the business of building palatial offices. Whether this constitutes self-dealing {a violation of federal tax regulations} is an open question. The IRS would have a rightful concern about spending too much on management and not enough on the charitable purposes it was supposed to support."

Administrative expenditures are permissible under current law so long as they can be shown to be "reasonable and necessary," said John Edie, the general counsel for the Council on Foundations, a Washington organization that represents philanthropic organizations.

"If I'm counseling a new foundation," said Edie, "a 'reasonable expense' is going to be one that is as close to the median" as possible for an organization of similar size.

In fact, the Gannett Foundation's administrative expenses last year were 2 1/2 times the median for nonprofits of its size, according to a study of philanthropic organizations by the Council on Foundations.

The foundation's president, Overby, said the increased administrative costs are largely the result of expenses incurred in moving the foundation last year from Rochester, N.Y., to the Washington area, not only for rent on the new offices but for severance payments to former employees and the foundation's lease commitment on its old Rochester office.

All told, the foundation expects to spend $6.7 million on its administrative expenses this year, a 22 percent increase over last year. Overby said, however, expenses should level out thereafter. "We built these headquarters for the long term," he said.

In contrast to the $15 million spent by the Gannett Foundation on its new headquarters, the Knight Foundation -- which is about the Gannett Foundation's size and also funds journalism-related programs -- recently spent $400,000 to move its headquarters from Akron, Ohio, to Miami, Fla. "We got a first-class office building built to our specifications on Biscayne Bay with new furniture, new computers and a new phone system," said Creed Black, the Knight Foundation's president. The foundation, with 14 employees, had expenses of $1.3 million last year.

Overhead costs aren't the only issue drawing attention and controversy to the foundation these days. In some circles, the foundation has aroused more concerns over what it isn't spending money on than what it is.

Neuharth and Overby say they intend to direct the foundation's $23 million annual budget into a select list of "high-impact" projects, rather than continuing its tradition of small grants to community organizations and journalism-related scholarships and education programs. The two men won't spell out the charitable causes that the foundation intends to support until after its board of trustees meets in December, but both said the foundation's emphasis on journalism, First Amendment issues and community programs will continue.

Said Overby, in a comment echoed by several trustees, "Many of our trustees are questioning whether a little goes a long way anymore. A little doesn't go a long way.

"High-impact grants," Overby said, do not include "giving a community group $2,500 for another copying machine."

Predictably, such sentiments worry the local groups that have relied on the foundation's largess. Dozens of groups in the Washington area, ranging from women's shelters to soup kitchens, have been recipients of Gannett Foundation funding that last year totaled $619,000. Many of those now face the possibility of seeing those funds dry up with the foundation's shift to fewer but larger grants.

"We're obviously concerned about what's going on over there," said Judith Johnson, executive director of Green Door, a Washington-based organization that received two $10,000 grants from the foundation in 1986 and 1989 to buy equipment for its job-skills programs for the mentally ill.

The funding slowdown is a sidelight to an increasingly bitter quarrel between executives of the foundation and Gannett Co. The two are legally independent but their histories are tightly intertwined.

In recent months, the rift has been exacerbated by the foundation's effort to sell its 10 percent stake in Gannett Co., the foundation's largest asset and largest source of income through dividends the stock provides. So far, the company has refused to meet Neuharth's terms on selling the foundation's shares back to Gannett. Though both sides talk about mending fences, no resolution appears in sight.