Inside Alexandria's City Hall, they're calling it "The ATM Affair."

Two city planners have resigned and a third has been disciplined, and even Mayor Kerry J. Donley (D) has come under scrutiny--all because an automated teller machine bigger than Old Town's architectural controls allow has been installed outside a bank on King Street.

When Donley is not wearing his mayor's hat, he is senior vice president of Virginia Commerce Bank, which recently opened a branch in Old Town's courthouse. With the branch came the need for the new sidewalk ATM.

It's the ninth ATM to appear in Old Town but the first since an ordinance last year strictly limited their size in the historic district.

At the insistence of preservationists who groused that outdoor ATMs would be an eyesore and degrade Old Town's architecture, the City Council voted to limit the size of the machines to 37 inches high by 23 inches wide. Donley, who is in charge of Virginia Commerce Bank's Alexandria branches, recused himself from the debate and the vote, citing a conflict of interest.

When it came time for the new King Street branch to open, Donley and other bank executives discovered that ATMs that fit the city's specifications aren't available--at least not "full-service" ATMs that have security cameras, are accessible by the disabled and allow deposits.

According to Rob Evans, director of marketing for ATM manufacturer NCR Corp., an ATM small enough to conform to the city law would have to be custom-made.

"It'd be very difficult to get a fully functioning machine with those specifications," he said.

Donley, in his capacity as bank executive, called Peter Smith, an urban planner with the city's planning staff, and asked Smith how to proceed. And that is where things unraveled.

According to City Manager Vola Lawson, Smith should have told Donley that he would direct the matter to his boss, Planning Director Sheldon Lynn. Instead, he instructed Donley to file an application to install the ATM, even though it would be larger than the law allowed. Donley handed the task to a bank employee.

The application landed in the lap of Clarke Magruder, a temporary planning staffer reporting to Smith. Magruder said yesterday he "followed the directions of a supervisor that I trusted," meaning he recommended approval of the application by the city's Board of Architectural Review. Magruder stated erroneously that it met all zoning guidelines.

The offending ATM was actually 11 inches taller and almost nine inches wider than permissible.

Magruder, Lawson said, "was allowed to resign." Smith has been "severely disciplined" but will remain on staff; he could not be reached for comment.

The investigation turned up another disquieting practice. Although he was not involved in the ATM transactions, planning staffer Tim Dennee was found to have falsified internal memos, city officials said. Instead of calling a city department for comment on an issue, Dennee would decide for himself what the department would say and attribute that to the department, Lawson said.

Dennee said that was routine practice, for the sake of efficiency. "Frankly, there's never been any problem with any of my reports," he said.

Dennee, too, was allowed to resign, Lawson said.

Donley did nothing wrong, said Lawson and City Attorney Philip G. Sunderland. But the arrival of an "illegal" ATM at the mayor's bank left everyone well aware of the touchy nature of being both elected official and local businessman, and left Donley trying to explain.

"I placed a phone call to get some information," Donley said. "Nothing more, nothing less. . . . At no time did I ask that this application be processed any differently than any other application."

The City Council will take up the ATM ordinance at its meeting next week. Lawson said the council may vote to amend the ordinance, allowing standard-size machines in the historic district. Or it might vote to uphold the ordinance, in which case the big, new ATM at Virginia Commerce Bank would be no more.