District of Columbia taxpayers are plowing $500 million a year into a Department of Human Services that lacks even "the most elementary principles of good management," the agency's new director reported yesterday as he laid out a program of reforms.

The result of current management shortcomings, DHS director James A. Buford told Mayor Marion Barry, are "at least mildly catastrophic" to the agency's 200 social and health programs.

In a 47-page report summarizing his first four months on the job, Buford said he has created a new management system designed to whip the agency into becoming "tough, efficient and lean." Buford said the task could take as long as three years.

"My examination of the financial management functions of DHS during the past 120 days leads me to conclude that in this critical area, DHS has failed," Buford declared.

"The department's financial functions are not badly managed -- they are unmanaged. The most elementary principles of good management are not followed," Buford reported.

The report released yesterday was the latest of several undertaken over the past years examining operations in the city's largest agency, one whose services touch the lives of at least one of every four Washingtonians each day.

The sprawling agency has been difficult to manage ever since 1970, when several numerous social service, health and public welfare agencies were combined. Services at times morale has been low and many programs have operated with inadequate funds.

In the current fiscal year, which ends Sept. 30, DHS expects to over-spend its congressionally approved budget by about $20 million, mostly in the hard-to-control areas of Medicaid and public welfare payments.

Buford, at a news conference with the major, would not place blame for financial nonmanagement on any individual, saying it was the fault of a system that evolved over many years.

Buford's report, while aiming at ways to deliver a high level of services to the city's poor and infirm in a time of financial austerity, put equal stress on serving taxpayers who "will expect and demand honest and economical government."

Buford said he has signed layoff notices for 100 of up to 300 DHS employes who will lose their jobs because of budget cutbacks at the start of the new fiscal year Oct. 1.

As a first step toward making management more efficient, Buford said all DHS headquarters operations now in at least four locations will be centralized starting Sept. 1 at 801 North Capitol St.

Ruford's own office will be moved from the Presidential Building, 12th Street and Pennsylvania Avenue NW. However, offices dealing with clients of various programs will stay where they are.

In the management area, Buford said top priority will be given to lowering the welfare assistance error rate from 12.9 percent to a federally set limit of 4 percent, and improving the city's high infant mortality rate, long-term health care, management of Medicaid and foster care of children.