The D.C. Department of General Services failed to follow its own recommended procedures in considering bids to lease abandoned trolley tunnels under Dupont Circle and should start the selection process all over, according to a preliminary report by D.C. Auditor Otis Troupe.

The report said DGS officials did not violate any laws, but said the "disjointed" procedures used to recommend a developer last September "has served to bring the integrity of the entire selection procedure under question."

The report, sent to city agencies yesterday, was prepared in response to a Virginia developer's complaints that a three-member panel appointed by DGS officials had unfairly recommended a competitor's proposal without comment from other city agencies, competing developers or community groups.

Troupe's report questioned the expertise of the panel. The report recommended DGS reject the group's findings and form a panel of experts and community representatives, which it called a "very logical and comprehensive selection procedure" that DGS officials had announced publicly last June.

"Instead, there was a somewhat vague procedure adopted for the selection process" and for choosing the three-member panel, the report said. "The auditor has not been able to ascertain the rationale for changing this procedure," the report said.

Harold Henson, director of the Department of General Services, could not be reached for comment yesterday on the report.

Ed Myers, director of the city's office of communications, said last night that city officials had not yet received copies of the audit and could not comment.

DGS officials have scheduled a public hearing on Wednesday to discuss its procedures with Dupont Circle citizens groups that also have asked for a new panel. Ward 2 council member John A. Wilson in a letter this week asked Mayor Marion Barry "to reconstitute the panel."

Last summer, DGS said a five-member panel, including officials from four city agencies and a community representative, would review three separate bids proposing to use for the tunnel space--for a health and squash club, a specialty food and produce market, or a columbarium to store the ashes of cremated bodies.

That panel was never formed. On Sept. 15, Henson chose the three-member panel, including John H. McKoy, a top city planner; William C. Jameson, head of the Minority Business Opportunity Commission, and Courtland V. Cox, a special assistant to Mayor Marion Barry.

After a two-hour meeting six days later, the group recommended the health club proposal, which was submitted by the Dupont Recreation Corp., a firm headed by William B. Fitzgerald Sr., president of Independence Federal Savings and Loan Association.

John C. Pappas, president of the Onshore Oil and Gas Co. of Alexandria, which wants to use the space for a columbarium, complained to Troupe and other city officials that the selection process was flawed.

Troupe rejected a complaint by Pappas that Fitzgerald had received favored treatment because the mayor's wife, Effi, serves on the Independence board of directors. Troupe said the Dupont Circle firm was a separate corporation.

Troupe also rejected Pappas' contention that DGS officials had vastly understated the amount of space available in the tunnels.