Virginia officials are investigating the records of a Falls Church charity headed by Princess Pale Moon, a Cherokee-Ojibwa Indian who calls herself a "modern-day Pocahontas" and who has sung the national anthem at two Republican national conventions.

Pale Moon's American Indian Heritage Foundation claims to use charitable contributions to assist American Indians and promote their causes. The foundation is based in Falls Church but is currently barred from raising money in Virginia, Maryland and Michigan because it has not complied with those states' requests to provide financial information, officials said.

Nonetheless, two Virginia residents recently notified the state that they had received fund-raising letters from AIHF, according to J. Michael Wright, Virginia's only charities investigator.

The investigation comes when Virginia, like many states, is struggling to keep tabs on a changing and growing charity field. Federal budget cutbacks to social service agencies have led to an increase in the number of new charities and to more competition for donor dollars, officials for charity groups agree.

Internal Revenue Service figures show that, nationwide, the number of tax-exempt organizations, which includes charities and other groups, rose from 886,658 in 1985 to 929,415 in 1986, said Johnell Hunter, an IRS spokeswoman.

"It is fair to say {the number of charities has} increased . . . but you can't say by what percentage with any certainty," she said.

Charitable contributions across the country rose from $8.8 billion in 1980 to $48 billion in 1985, the most recent year for which results have been tallied, she said.

Locally, the goal for each charity -- through such techniques as the dinner-hour telephone call or a slickly printed mail appeal offering a chance to win a Florida vacation -- is to get a piece of the estimated $2.5 million that Virginians contribute daily to nonreligious cases, state officials say.

Virginia has 650 registered charities; they are required to file annual reports with the state. Additionally, at least 5,000 nonprofit organizations seek donations but are exempt from annual registration requirements.

Although many charities fill genuine needs and funnel contributions to good works, some are less effective. State officials complain that severe understaffing; a lack of coordination between states, and sometimes between states and the federal government; disinterested prosecutors; insufficient laws and other obstacles prevent them from more effective monitoring of charities and fund-raisers.

For example, 14 months ago, Virginia officials filed suit against Virginia Telemarketing Inc., a Fairfax County firm that has raised money for Baileys Crossroads Kiwanis Club, the Annandale Kiwanis, the Falls Church Police Association, the Chantilly Jaycees and other groups.

No trial date has been set in Fairfax County Circuit Court because the state is waiting to gain access to federal tax records, according to Edward P. Nolde, the assistant Virginia attorney general who is handling the case. The IRS had no comment.

The state alleges that Virginia Telemarketing engaged in a pattern of deceptive and misleading charitable solicitation, telling donors that contributions for the benefit of various civic groups would be used in part to send handicapped, elderly or needy people to concerts or other entertainment events.

Charities for which Virginia Telemarketing solicited received about 15 percent of the funds collected, in accordance with their contract. The state alleges, however, that the defendants enriched themselves through such practices as continuing to solicit money without regard to seating capacity at the charity event being promoted.

For example, according to court papers, the defendants solicited $134,126 for a December 1984 concert for the Falls Church Police Association. That was enough to buy 26,825 passes, but the defendants allegedly distributed only 1,700 passes. Moreover, the hall seated only 591, according to the state's lawsuit.

"When they don't tell us . . . how much they're giving away, I kind of feel cheated," said Richard Corwin, immediate past president of the Falls Church Jaycees, one of the charities named in the Virginia Telemarketing case.

Robert J. Duchano, president of Virginia Telemarketing and a defendant in the case, said he had not seen a copy of the lawsuit therefore had no comment. "I don't really know what's going on," he said.

The state is asking, among other things, that Virginia Telemarketing and Duchano compensate the state for any money obtained through false representation and that the money be put into a trust to benefit handicapped, elderly and needy people.

According to Nolde, in the 3 1/2 years he has been in his job, he can remember only four charitable solicitation cases brought by his office that have reached court, and Virginia Telemarketing is one of them.

The investigation of AIHF is one of five formal charity-related probes under way in Virginia, according to Wright, who said the records of 15 other groups are being reviewed. He would not identify the organizations involved.

Princess Pale Moon's AIHF says it has used donations mostly raised by direct mail over the years to send Indian youths to summer camps, sponsor achievement awards in Indian schools and contribute money, clothing and blankets to reservations, mission schools and Indian centers.

It says it distributes Thanksgiving turkeys to Indian reservations, and prints copies of free Bibles in various Indian languages, including Navajo and North Alaskan Eskimo, among other activities.

AIHF has ambitious plans, including a corporate fund-raising drive to help finance a $100 million, seven-building National American Indian Cultural and Performing Arts Center somewhere in the District. AIHF also says it is planning its first Cotillion-Debutante Ball, the formal presentation of the national Miss Indian USA contestants, to be held here in November.

Pale Moon said the recent solicitations in Virginia were accidental, and blamed the problem on a "boo-boo" by the Saturn Corp. of Cheverly, which is under contract to do AIHF computerized mailings. A Saturn official said his firm does not address AIHF mail to residents of Virginia and Maryland.

The AIHF also has been named in several recent Fairfax County civil lawsuits brought by suppliers or contractors complaining that they had not been paid.

The AIHF is not registered to raise money in the District, and there have been no complaints of illegal solicitation, District officials said.

Pale Moon said in an interview that she hopes to raise money legally in Virginia again by the end of the summer. "We have about 5,000 {Virginia} donors, and naturally, we kind of miss their letters and gifts to us," she said. In the past, Virginia donations netted the AIHF an average of $4,000 a month, she said.

Before the AIHF can resume legally raising money in Virginia, it must present to the state a certified financial audit, which state officials requested after they said they were unable to extract "meaningful" information from the organization's 1985 tax return.

Pale Moon said the information on the 1985 return was a "guesstimate" and did not necessarily depict the true financial condition of her organization. The AIHF's 1985 tax return, on file with the state, shows estimated 1985 assets of $44,500 and liabilities of $650,000.

Pale Moon said an audit was begun but never completed because of the death of one auditor and because the AIHF could not afford the auditing bill.

The 1985 tax return also showed that Pale Moon and her husband, Wil Rose, were paid salaries of $48,000 each for their respective positions as president and chief executive officer of the AIHF, plus expenses. "We feel that's a very fair salary for what we take in," she said.

Pale Moon estimated that her charity has a debt of $400,000 to $500,000 but said the group has "tightened up" by laying off nearly half of its 30 employes and cutting back on fund-raising expenses.

She complained that the giving public is more skittish than before "that television problem with Jim and Tammy Bakker" but expressed confidence that the public will "learn to trust" again. "I just feel very positive about the giving nature of the American people."

A spokesman for a charity-watchdog group, the Council of Better Business Bureaus, said the group has tried unsuccessfully at least three times in the past year to obtain information from the AIHF regarding its programs, governance, fund-raising and finances for use in responding to inquiries from donors and prospective donors.

A second watchdog group, the National Charities Information Bureau, says that despite repeated requests, the AIHF has not provided copies of annual reports, audits, sample fund-raising materials, bylaws and other information needed to rate the charity, said the bureau's president, Kenneth Albrecht.

Asked why AIHF had not sent information to those independent groups, Pale Moon said she did not agree with their standards and had "some real problems" with the methods they use to judge charities.

Despite AIHF's troubles, Pale Moon said she is not worried about the organization's future.

"All through my life, every time I've been in a difficult situation, that's when my creative mind works the best," she said.

Virginia's Wright said that charity abuse is "a very difficult field to regulate because you have to weigh the First Amendment's free-speech rights against the responsibility of trying to protect the public. It's a very fine line."

Finding witnesses can be difficult, officials say. Many people who receive what they consider to be misleading or objectionable solicitations in the mail simply toss them into the garbage.

"Or, you're called at the end of a long day, the kids are running around the house, you've got something on the stove and it's burning, you maybe hear the name of the sponsor, that they're sending handicapped kids somehwere, and that maybe they want $20 from you," Wright said.

"You either just say no and hang up, or say yes just to get them off the phone.

"I don't want to give the impression that every charity is bad," he said. "There are some very good charities out there, and they clearly need your money. They clearly need support. But take the time to do research before you give."

State registration forms often ask whether a charity has been in trouble in another state, but there is no organized way for a Virginia official to know whether a particular group has had trouble elsewhere.

There is little uniformity among state charity laws, either; what is illegal in one state may not be in another, and regulations can vary among municipalities within a state.

In an effort to address that problem, the National Association of Attorneys General has spent three years developing a model state law for regulating charitable solicitations. Preliminary versions have been adopted by Massachusetts, Connecticut and Oregon, and part of the suggested law was passed last winter by the Virginia General Assembly.

New Virginia regulations, which took effect July 1, require among other things that professional solicitors provide the state with more complete records, including lists of contributors and bank account numbers, Wright said.

Better records will help, he added, but he says that his office needs at least six more staff members if it is to keep up. There are three full-time employes: himself, a secretary and an office coordinator.

In the District, Henry C. Lee III, acting administrator for the city's Business Regulation Division, said he knew of no charity investigations or prosecutions this year. He said 24 investigators are available to help with charity and consumer inquiries.

In Maryland, one person, Lois Hugg, oversees charity regulation, and she has a secretary. Cases involving possible wrongdoing are referred to the attorney general's office and the local state's attorney, said H. Stafford Bullen, assistant secretary of state.

During the past year, Maryland has taken action to revoke the registration of one charitable organization, The American Health Assistance Foundation, for various reasons, including its alleged failure to disclose contractor relationships, as is required, Bullen said.

Maryland officials have also taken about seven administrative actions against fund-raisers, either denying registrations or not renewing them, Bullen added. There have been no criminal actions, but a civil suit is pending against a fund-raising entity that allegedly received unlawful fees and made misrepresentations while producing and marketing a circus, officials said.