Admitting that his agency fostered a "potential" conflict of interest, ACTION director Sam Brown yesterday canceled a $50,740 contract with a community development group and ordered the review of all ACTION contracts and grants made since last March.

The move by Brown came on the wake of published charges that some staffers at the federal volunteer agency had arranged grants and contracts for private organizations to which they were connected by past or present employment.

ACTION general counsel Harry N. MacLeon said in a memo to Brown that most of the charges were "either inaccurate or of little substance." However, MacLean said he came across a "difficult situation" in the course of his investigation into the allegations.

The "difficult situation" involved Gerson Green, an official of the Washington-based National Center for Urban Ethnic Affairs, who was employed as a special consultant to ACTION at the time the agency gave one grant and two contracts - totalling $546,740 - to his organization.

MacLean said Green "did not participate in any of the formulation or decision processes on behalf of the government on the grant or the contracts" after working as a special ACTION employee for more than 60 days.

Federal standards of conduct prohibit a special government employee from representing third parties before cederal agencies if the employee has worked for the government more than 60 days in the same year.

In the case of the now-canceled $50,740 contract to develop manuals for ACTION volunteers who aid older Americans, Green represented his community development group on several occasions before ACTION staffers. But Green did not violate the 60-day rule on any of those occasions, MacLean said.

Brown agreed.

"From a policy point of view, it is simply unacceptable for a consultant to the agency to simultaneously be employed by a grantee of the agency. The agency must of course accept responsibility for allowing this to happen," he said.

Green saw the whole matter as much ado about nothing. But he said he was bitter because the contract cancellation probably would force him to fire two staffers.

"I didn't ask for that contract, he said. "But they've [the media] made it look like an insider thing. Hell, if it was something 'on the inside,' I hope I could've done better than to get a contract that carries no overhead expenses," he said.