The federal grand jury investigating D.C. Democratic Party Chairman Ivanhoe Donaldson is focusing on his handling of a special Department of Employment Services fund that operated outside the city's main financial management system and was controlled by Donaldson when he headed the department, sources said.
About $30,000 in checks issued by Donaldson, Mayor Marion Barry's chief political adviser and a former deputy mayor, that are the subject of the investigation were drawn on a special administrative account tied to the unemployment compensation fund, sources said.
Until October, the account, which can have up to $250,000 in it, was under the control of the head of the employment services department, who could issue checks without having them reviewed by the city controller's accounting system, city officials said. Now, checks drawn on the account are issued through the controller's office.
Donaldson, who has declined to comment on the investigation, headed the department from the fall of 1980 through May 1982.
The District pays nearly all its bills and issues payroll checks for city workers through a central computerized financial management and accounting system that is run by the controller's office.
However, there are about a half-dozen accounts totaling about $800,000 for city agencies directly under the mayor's control that are separate from the central financial management system, Controller Anthony N. Calhoun said yesterday.
All of the accounts, except a $160,000 Department of Human Services emergency assistance fund, now issue checks through the controller's office.
Calhoun said the separate accounts are intended usually for emergencies, such as providing rent payments for welfare recipients.
In the case of the employment services fund, such an emergency might be a lost or missing unemployment check.
Calhoun said it takes between 17 and 20 days for checks to be issued from the central system, while the separate accounts can provide money much quicker.
The grand jury has focused on Donaldson's handling of checks issued in the names of three people, at least two of whom are longtime friends of his.
One of the friends, Charles E. Cobb, has told the grand jury that he never worked for the city and did not receive the $4,500 in city funds that were issued in his name, sources said.
The U.S. attorney's office and the FBI are investigating whether the proceeds of the checks went to the persons in whose names they were issued and whether any of the money went to Donaldson.
The investigation was started after city Inspector General Joyce Blalock alerted the U.S. attorney's office to the checks in question. The grand jury subsequently subpoenaed the fund's records and investigators are reviewing additional checks to see what they were for, according to sources familiar with the investigation.
Barry asked Blalock to review financial controls in the employment services department after he said an illegal purchasing scheme was uncovered earlier this year within the agency.
On Oct. 1, Barry announced in a press release that several steps were being taken to tighten financial controls over the department of employment services funds after what he called a "thorough review" by Blalock.
Barry's statement said that the special administrative fund now being examined by the grand jury was transferred to the city controller's office "for greater security."
"No discrepancies were found associated with the special administrative expense fund," Barry's statement said. It could not be determined yesterday whether Blalock found the checks that are now the focus of the investigation before or after Barry's Oct. 1 statement.
City Administrator Thomas M. Downs said yesterday that city officials will not comment on Blalock's findings while the matter is being reviewed by the U.S. attorney's office.
City government officials and Barry political associates said yesterday they were surprised to learn of the Donaldson investigation. Barry is in Africa and could not be reached for comment.