Prince George's County Sheriff Don Edward Ansell was indicted yesterday on charges that he misappropriated nearly $2,000 in funds earmarked for a deputy-of-the-year banquet, tailed to declare the money on his state income tax and lied to a grand jury about it.

The indictment was accompanied by a scathing grand jury report asserting that the sheriff's department "consists mainly of obese, undereducated and untrained persons hired as deputies" and suffers from "favoritism, cronyism and nepotism" at the highest levels. Departmental morale, the panel said, "is at a minus level."

The grand jury said it found "piltering lying, cheating and misuse of (jail) trusties for personal gain." The trusties were used "to paint (private) homes, do carpentry, plumbing and various other skilled labor for menial wages," according to the report, Ansell received such services. The Washington Post reported several months ago. The grand jury does not identify any official who so benefited in its report, however.

Also indicted in connection with the alleged scheme yesterday was one of Ansell's top assistants. Two former sheriff's deputies were indicted on unrelated charges of grand larceny as well.

The indictment alleges that Ansell put to personal use $1,920 he and Assistant Sheriff Guy T. Williams - his indicted aide - had received from sales of tickets to the Sept. 10, 1976, banquet, thereby violating their fiduciary responsibility and committing fraud. According to sources close to the investigation, there is evidence that the funds were used to pay Ansell's children's private school tuition while Ansell was also making payments on country property, a boat and a backyard pool.

The indictments were the first against a Prince George's County sheriff and the first against an elected county official since former county commissioner Jesse Baggett was charged with receiving gifts in return for zoning favors in 1967. Baggett was subsequently convicted on federal charges after the state charges were thrown out.

Yesterday's indictments were the culmination of a six-month long investigation that had been prompted by a Washington Post story dated March 28, State's Attorney Arthur A. Marshall Jr. said. That story had detailed Ansell's administration of the department, his lifestyle and his handling of the banquet money.

"We're perfectly satisfied with what we did today," said John M. Hill III, jury foreman yesterday after he delivered the report and the indictments to Circuit Court Judge Jacob S. Levin.

The grand jury had taken testimony from 60 witnesses between Aug. 25 and Oct. 18 when a vote on indictments was taken, officials said.

Neither Ansell nor Williams was available for comment yesterday. Ansell's attorney, Victor Houlon, who had defended the sheriff to reporters during the course of the probe, came to the county courthouse to pick up the indictment papers but declined comment.

Meanwhile, Lance W. Billingsley, chairman of the Prince George's County Democratic Party, called yesterday suggested that Ansell might have to resign. He said that if the grand jury documents contain "evidence or even strong indications" of wrongdoing, "my recommendation would be that, although Don is entitled to the presumption of innocence, yes, I think he should step aside."

Ansell was reportedly at his desk yesterday having no intention of stepping down. Maryland law allows a public official to remain in office until he or she is convicted of a criminal offense.

If convicted on all counts, Ansell could be sentenced to a maximum of 16 1/2 years in prison and fined $500.

For the beefy, 40-year old sheriff, the indictment and grand jury report stood in marked contrast to the atmosphere in which he took office nearly seven years ago. Ansell, a former state trooper and private detective, portrayed himself in the 1970 campaign as the reform candidate and pledged to make the department more professional and more geared to progressive penal programs.

The Post reported in the March article cat, as sheriff, Ansell used county money legally to pay for most of his college education, and his government-paid secretary typed some of his papers. At the same time, Ansell's statutory salary frose from $18,000 to $25,500.

During this time, he also managed to acquire an 18-foot cabin cruiser, a $9,700 backyard ppol and an acre campsite in Luray, Va., and to send his children to private school.

His income received a boost in June, 1975, when nearly 500 "Friends of Sheriff Don Ansell" attended what Ansell says was a surprise "testimonial" organized principally by Williams and Enid Smith, another of his appointed assistant sheriffs. Ansell reported $4,380 from that affair as "miscellaneous" personal income on his 1975 return, The Post reported.

Other than his wages as sheriff, Ansell reported no additional income on his 1976 federal and state income tax returns, copies of which Ansell publicly filed in Annapolis.

In the March 28 Post article in which the deputy-of-the-year banquet was discussed, Ansell refused to account for the banquet's finances except "to a grand jury." At the time, he said there were 200 crashers and he personally lost $600 on the event, "the last function I'll have for them."

State' Attorney Marshall said yesterday however that "almost all checks (for the banquet) were made out to Ansell or endorsed by Ansell." Deputies, who normally pick up paychecks from their section chiefs, said they had to line up at the sheriff's office to collect checks and were asked to buy $10 tickets as they received them shortly before the banquet. Those who didn't buy tickets, they said, were told they would have to work at the jail the night of the banquet.

Ansell and his aides failed to set up a special bank account to handle payments for the banquet which was held at the Sheraton-Lanham. The personal checks subsequently used to pay for the food bounced.

In answering the grand jury's questions, both Ansell and Williams allegedly lied in repeatedly asserting there was no income over expenses and no one profited from the dinner.

According to the indictment, the following exchange took place during Ansell's testimony before the grand jury on Aug. 25.

QUESTION: Did you yourself, any member of your family, any member of the sheriff's deparment, to your knowledge, use any money or checks from income received from ticket sales for the deputy-of-the-year, and convert it to their own use?

ANSELL: No, sir.

QUESTION: To the best of your knowledge, there was no income over expenses?

ANSELL: To my knowledge there was not, no.

QUESTION: I want to know if anyone made a profit from the dinner.

ANSELL: No sir, no.

The two former deputies indicted are Dennis Brugman, recently retired on medical disability, charged with four counts of grand and petit larcency of money in November, 1974; and Raymond W. Barry, now a deputy sheriff in St. Mary's County, charged with malfeasance and petit larceny for allegedly taking a handgun seized during an eviction this January. These instances are unrelated to the Ansell indictments.