At its annual banquet and dinner dance last night, the Allegany County chapter of the NAACP awarded Freedom Fighter Awards to administrator Pansye Atkinson for her contribution to student life at Frostburg State University, and to a year-old group calling itself the Frostburg State University Black Alumni Association.

The awards had an ironic twist: Atkinson was cited for her work in the school's minority affairs office, which was abolished last year. And the black graduates were told by the school last month not to represent themselves as an official alumni group.

Yet, the awards underscored a lingering controversy at the small-town mountain campus of 3,800 students 150 miles northwest of Washington. While the school's aggressive president, Herb. Reinhard Jr., has helped upgrade its status, he has been dogged by charges of subtle racism.

"I think he's very insensitive to the racial problems on campus," said John Wright, a Howard County minister who heads the state NAACP.

The Maryland NAACP in September had sought a special investigation of the charges, stemming from the abolition of Atkinson's office and her alleged demotion to affirmative action-equal employment opportunity director. The Maryland Board of Trustees of State Universities and Colleges last week was preparing to back Reinhard.

Said Edgar B. Schick, the board's executive director: "The board feels proper attention is being given to issues. These are early '80s issues raised from the dead, settled, over. It doesn't mean there are no scars. It's a complex matter involving internal relationships. FSU is a well-run campus, whose president is committed to positive relations between blacks and whites."

But the controversy, involving other incidents of alleged racism on campus, has hardly been laid to rest.

Depending on perceptions, the complaints leveled at Reinhard and the school reflect either the disgruntlement of a few individuals or a Reagan-era retrenchment from hard-won civil rights gains of the 1960s and 1970s.

Maryland was one of 10 southern states taken to court in 1970 to achieve racial integration of college campuses. As part of a settlement, Maryland agreed to a set of goals, including a 1989 black enrollment of 12 percent at Frostburg, set in a county of 84,000 residents, fewer than 2 percent black.

The black enrollment at Frostburg reached a high of 10.3 percent in 1985, and has been holding at 8.5 percent the last two school years, accounting for 276 this fall. There are four black faculty members, compared with a high of five in 1978, and 10 blacks on the school's administrative staff, an all-time high.

For Reinhard, who spent five years as an administrator at Florida A&M, a historically black university, and who has boosted Frostburg's image and status from state college to state university, the racial charges are especially vexing.

"They don't have anything of substance. But we've spent an ungodly amount of time on this thing all year long," Reinhard said.

"The only thing that will end this situation is if I restore Pansye Atkinson to her former title, restore the office and have every black student under her wing," he said. "But that is not good for the black students."

Shortly before his arrival, a reaccreditation team from the Middle States Association of Colleges and Schools urged the abolition of the minority affairs office, saying the school was supporting the "sociological anachronism of segregation." A similar recommendation had come from an all-white, 69-member school task force, and a handful of black students also had complained about the office.

In one of his first acts as president, Reinhard abolished the office in August 1986. In its place, he created an office of student human relations to deal with the problems of all students. He put in charge Bernard Wynder, a 1978 black Frostburg graduate from Baltimore.

Reinhard defended the change as necessary to bring black students into the mainstream at the campus. But Atkinson, who is black, contended that her office -- created in 1969 to guide newly arrived urban blacks -- was essential to black progress at the 91.5 percent white school that draws nearly a third of its student body from the Washington area.

Atkinson, on advice of her attorney, declined to discuss her case. In a lengthy written defense last year, she blamed her problems on lack of administration support and argued that the office was needed to help blacks maintain their ethnic identity within an integrated but predominantly white school.

In its complaint to the state board, the NAACP urged that her office be reestablished, attached a petition with 200 names, and complained about numerous personnel practices and incidents it called racist.

Among the issues raised was the decision to withhold student government funds from an alternative black campus newspaper, Unity Line, which carried controversial reports and comments.

Also criticized was the alleged leniency of the school toward a white fraternity that last spring allowed a pledge to wear a T-shirt with a racial slur printed on it. The fraternity was made to issue a public apology and attend a series of human relations seminars. Reinhard defended the penalty, pointing out that three of five students setting the punishment were black.

About the same time, the school was establishing geographic alumni chapters. But a black alumni group had already formed on its own and held its "First Annual Party with a Purpose," attended by 70 graduates in May.

The purpose of the group, according to its first newsletter published last month, is "networking" for black student and alumni advancement.

"There is no such thing as a black alumni association," said Rene Atkinson, the director of college advancement, who is no relation to Pansye Atkinson. The Frostburg State Alumni Association, however, has named a committee to consider whether to accept the black group as a separate chapter.

This month, another alternative black newspaper appeared on campus, published by Black Leaders United, a militant student group critical of Reinhard and of the school-supported Black Student Alliance.

"People are under the impression that Frostburg has excellent race relations, and that there is no discrimination," remarked the paper, named The Rude Awakening. "We are sorry to say that racism at Frostburg is reaching an all-time high."

However, the paper added, "It is so subtle it blinds us all."