Alexandria City Manager Vola Lawson, outlining a sweeping overhaul of the city's Code Enforcement Department, announced plans yesterday to demote the department's head, fire three building inspectors and reprimand four other employes as the result of a five-month investigation into allegations of conflict of interest in the department.

Lawson also announced a major reorganization of the department that includes hiring a new director with technical expertise in construction, transferring some inspection duties now done by other city agencies to code enforcement, improving staff training and monitoring, and clarifying conflict-of-interest rules governing building inspectors.

The alleged infractions include inspecting construction work done by a firm in which one of the three inspectors had a financial interest; making false statements to police; trying to "secretly . . . manipulate the inspection process"; falsifying permit applications, and performing work for a contractor elsewhere and then inspecting his work in Alexandria, according to a report released by Lawson.

The third dismissal was also for "the poor quality of {the inspector's} work at" the Alexandria home of Rep. F. James Sensenbrenner Jr. (R-Wis.).

The 25-page report includes blistering criticism of "senior management" in the Code Enforcement Department, which has been headed since 1984 by William H. Pennell Jr., a former police sergeant.

The report cited managers' failure "to recognize in a timely manner the extent of the conflict-of-interest problem," to inform employes of rules governing such situations, and to exercise proper oversight and follow-up of delegated duties.

New regulations will require written approval for outside work by Alexandria code enforcement personnel, Lawson said.

When the city hires a new director, who, unlike Pennell, will be a professional engineer, Pennell will become deputy director, and his responsibilities and those of his top subordinates, Fire Marshal Mike Connor and building official Uwe Hinz, will be redefined, Lawson said.

"It's well thought out; it's very sound," Pennell said yesterday of the proposed changes, adding that he does not consider the actions as criticism of his performance. "We're going to take in many more responsibilities . . . but my job remains the same," he said.

Lawson would not identify the three inspectors who received notice late Wednesday of their pending dismissals, but sources said they are John Brandt, John Weaver and Robert Warren. Brandt and Weaver have been on paid administrative leave since the probe began in January; Warren was placed on leave Wednesday night, the sources said. The inspectors can appeal their dismissals.

Lawson's investigation resulted in part from complaints from Sensenbrenner that his house was approved for occupancy despite code violations, including the substitution of aluminum for steel columns in an indoor pool room.

According to Lawson's report, city inspectors approved work at Sensenbrenner's house before it was completed; revisions to the grading at the site were not done properly and, "contrary to the allegations of the builder," no permission was given by code enforcement for the column substitution.

None of the three inspectors could be reached for comment yesterday. Brandt's attorney, Roger L. Amole, said his client would appeal any dismissal. "John Brandt has done nothing wrong," Amole said.

Lawson said she would forward her report to Commonwealth's Attorney John Kloch to determine whether criminal action should be taken against any city employe under the state's comprehensive conflict-of-interest act.

Lawson also said she was withdrawing reprimands given to two code enforcement employes last year. They were disciplined by superiors for failing to go through "the chain of command" with concerns about irregularities and wrongdoing in building inspections.

Lawson declined to name the two, but sources said they are Sue Lorentz and George Parrish.

Apart from the Sensenbrenner house, which was built by developer Thomas B. O'Hara, the investigation uncovered two other allegedly deficient code inspections: an improperly constructed fire separation wall at the Radisson Mark Plaza Hotel and a retaining wall constructed without a permit at a private house, also built by O'Hara.