A new audit report has accused the D.C. Department of Human Resources of short-cutting the city's complex budget procedures in the way it spent nearly $2.2 million in payments received from the federal government.

While the audit findings are technical, they raise some fundamental questions about the way the city handles money it gets through some programs supported with federal funds.

At issue is money paid to DHR over a six-year period by the U.S. Veterans Administration for the care of ex-servicemen at the D.C. Veterans Home, some of whom had been treated for alcoholism.

According to David Legge, D.C. director of municipal audit and inspection, DHR put the money in a revolving fund and used it to pay salaries of new employes in DHR's mental health administration.

The common description for this process is backdoor financing, since it kept the money - and the jobs - outside the formal city budget. The formal budget goes through a long process cluminating in Congressional enactment of an annual appropriation bill. The operating budget for the current fiscal year is $1.3 billion.

What DHR should have done, Legge said, was to put the money from the Veterans Administration in the city treasury. If that had been done, the money would no longer belong to DHR, but would be put into an account to help finance the entire city budget.

Federal grants and other payments to the city amount to about $400 million a year, over and above the formal budget, and the question raised by Legge was whether the money paid to the Veterans Home should be considered in this category.

Legge said his auditors could not "locate any budgetary or legal authority which authorized DHR to expend the (Veterans Administration) reimbursement" as part of a revolving fund.

DHR Director Albert Russo disputed Legge's findings and said he would ask for a legal opinion from the corporation counsel's oftice.

"This course of action is considered acceptable at this time," Legge replied. "However, we will continue to follow up on this issue until it is finally resolved."