A five-year-old District government plan to repair streets, curbs and sidewalks in the Southeast Washington neighborhood of Marshall Heights remains unfinished because nearly half of the $5 million authorized for the project either was not spent or was shifted to unrelated projects, according to a report released this week by D.C. Auditor Otis H. Troupe.

Troupe criticized the D.C. Department of Public Works for using nearly $1 million of the funds authorized for the Marshall Heights project to pay three consultants retained by the department: more than $600,000 to Alexander Grant & Company, $250,000 to Mitchell Systems Corp. and $83,700 to American Management Systems Inc.

The city hired the consultants to improve the financial management of the District's multimillion-dollar capital building program. Officials said the improvements have resulted in considerable savings.

The Public Works Department's "unilateral change in plans" demonstrated "a clear disregard for the budget approval process and a lack of integrity with regard to budgets submitted to the District Council and the Congress," Troupe said in his report.

Troupe said the department treated the Marshall Heights program as a "departmental miscellaneous account" to fund unrelated projects without seeking approval from the City Council.

The bulk of the funds earmarked for Marshall Heights in fiscal 1982 and 1983 went to Alexander Grant & Co., a Chicago-based accounting firm that now employs former city administrator Elijah B. Rogers in its Washington office.

City officials said the contract was awarded while Rogers was city administrator, but that it was negotiated by Alphonse G. Hill, the deputy mayor for finance.

The auditor also said that public works officials obtained budget authorizations from the City Council for the Marshall Heights project while fully aware that the money would be spent on unrelated projects, including the consulting work.

City Administrator Thomas M. Downs and other city officials acknowledged yesterday that some technical mistakes were made in handling the Marshall Heights program. However, they denied that the budget approval process was circumvented or subverted and emphasized that the city is committed to completing the project.

Downs disputed Troupe's assertion that public works officials were required to get council approval to use Marshall Heights funds for the unrelated projects. He also said the Public Works Department finished work on all streets designated by the council as top priorities.

Marshall Heights, nearly 20 blocks of low- to moderate-income housing in Southeast Washington, was designated as a special target area in 1980 as part of Mayor Marion Barry's rebuilding program.

As part of the program, the city agreed to use federal housing funds to pay half the costs for repairing the sidewalks and gutters -- charges normally paid by neighborhood residents when the repairs are being done for the first time.

"Our citizens are not angry," said Carrie L. Thornhill, deputy director of the Marshall Heights Community Development Organization Inc. "Basically, we want the work completed."

Downs said the special program was halted in 1982 because the matching federal funds were unexpectedly cut off and that the council was informed of that. He said the cutoff crippled the program because, by law, the city cannot pay the entire repair costs with local funds.

He said that once the federal funds were halted public works officials then decided to use part of the Marshall Heights money to pay for the consultants and other improvement projects outside of Marshall Heights.

Downs said that public works officials erred in charging the entire $957,000 worth of consultant work to the Marshall Heights program. He said the city has decided to correct the mistake by applying the consultants' cost to the entire capital projects budget.